THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

GIFT  OF 

R.   E.    Collom 


UNIVERSITY  of  CALIFORNIA 

LOS  ANGELES.  CALIF. 

^£/f  of H.    3.   Sollom 


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THE  PETROLEUM  INDUSTRY 


r-c 


The    Beginning   of    the    American    Petroleum 
Industry 

The  man  in  the  silk  hat  is  Edwin  L.  Drake;  the  man  near 
h'm  is  his  engineer,  Peter  Wilson.  Near  the  derrick  are 
"Uncle  Billy"  Smith  and  his  sons,  Charles  and  Frank, 
who  drilled  the  well. 


THE 
PETROLEUM   INDUSTRY 


BY 

CHARLES  E.  BO^VILES 


From  the  Press  of 

SCHOOLEY  STATIONERY  &   PRINTING  CO. 

KANSAS  CITY,  MISSOURI 

1921 


COPYRIGHT 

CHARLES  E.  BOWLES 
1921 

All  Rights  Reserved 


f  FOREWORD 

This  book  has  been  written  with  the  definite 
purpose  of  helping  men  and  women,  far  removed 
from  the  Oil  Fields,  to  "see"  the  Petroleum  Indus- 
try— as  it  really  is. 

Thousands  of  people  who  are  interested  either 
directly  or  indirectly  in  the  Petroleum  Industry  may 
never  actually  see  an  oil  well,  or  a  tank  farm,  or  a 
pipe  line,  or  a  refinery — but  these  people  want  to 
know,  and  should  know,  about  Petroleum. 

This  marvelous  thing,  Petroleum,  is  industrially 
too  vital  to  us  today,  and  financially  too  close  to  us, 
for  any  man  or  woman  not  to  know  something  about 
it. 

This  book  tries  to  tell  Petroleum's  story — 
briefly,  frankly,  impartially  and  accurately. 

Charles  E.  Bowles 

Tulsa,  Oklahoma 
May  30,  1921 


VII 


CHAPTER  HEADINGS 

Chapter  Page 

I.    A  Short  History  of  Petroleum    .    .  1 

II.    Oil  Fields  of  the  United  States    .  14 

III.  Oil  Fields  of  the  World    ....  33 

IV.  Production       52 

V.    Transportation 74 

VI.    Refining 87 

VII.    Marketing 110 

VIII.    Gas  and  Gasoline 120 

IX.    Assets  of  the  Petroleum  Industry  140 

X.    Finance — and  the  Growth  of 

Industries 148 

XI.    Creating  Investment  Securities    .  158 

XII.    Petroleum's   Industrial  Position    .  171 


IX 


LIST  OF  TABLES 

Table  Page 

1.  Oil  Fields  of  U.  S.— Production  1920     .  17 

2.  Oil  Fields  of  U.  S.— Production  1859-1920  19 

3.  Production  in  U.  S.  by  States,  1859-1920  32 

4.  Production  of  World,  by  Countries,  1857- 

1920 48 

5.  Wells  Completed  in  U.  S.  in  1917     ...  55 

6.  Producing  Oil  Wells  in  U.  S.  1920     .     .  56 

7.  Companies     Producing     Over     1,000,000 

Barrels !    •     •     •  '^2 

8.  Some  Large  Pipe  Line  Companies     .     .  78 

9.  Some  Large  Owners  of  Tank  Cars     .     .  83 

10.  Petroleum,  Gasoline  and  Motor  Vehicles  96 

11.  Growth  of  Cracking  Plant  Stills     ...  97 

12.  Petroleum  Products  for  1920     ....  100 

13.  Exports  of  Petroleum  Products,  1918     .  113 

14.  Capitalization  and  Assets,  S.  O.  Group     .  115 

15.  Production  of  Artificial  Gas,  1918     .     .  121 

16.  Production   of  Natural   Gas,    1918     .     .  123 

17.  Gasoline  Produced  in  1917 127 

18.  Casinghead  Gasoline  in  1917     ....  134 

XI 


THE  PETROLEUM  INDUSTRY 

Table  Page 

19.  Gasoline  by  Absorption   Plants,   1917     .  135 

20.  Detail  of  Wealth  for  1912 173 

21.  Changes  in  Urban  and  Rural  Population  175 

22.  Growth     in     Value     of     Manufactured 

Products       177 

23.  Increase  in  Railroad  Mileage     ....  179 

24.  Growth   in    Population,    1790-1920     .     .  183 

25.  Thirty    Years'    Growth 185 


XII 


LIST  OF  ILLUSTRATIONS. 

Facing 
Figure  Page 

1.  The  First  Well V 

2.  Kier's  Rock  Oil 8 

3.  Edwin   L.   Drake 8 

4.  Some  Early  Pioneers 9 

5.  Tools  Used  by  Drake 9 

6.  Drake  Monument 9 

7.  Oil  Fields  and  Pipe  Line 16 

8.  Trapshooter  Well 24 

9.  Spindletop  Well 24 

10.  Lake  of  Oil 25 

11.  Glenn    Pool,    Panorama 25 

12.  Glenn  Pool,  Drillings 25 

13.  On  the  Cimarron 32 

14.  Colorado  Shale  Beds 32 

15.  Mexican    Oil    Fields 35 

16.  South  American  Oil  Fields 43 

17.  Russian    Oil    Fields 47 

18.  Cerro  Azul 48 

19.  Surakhani 49 

XIII 


THE  PETROLEUM  INDUSTRY 

Figure  Facing 

Page 

20.  Rotary   Drilling   Rig 56 

21.  Portable  Drilling  Rig 56 

22.  String  of  Tools 57 

23.  Pipe  Yard 57 

24.  From  Surface  to   Sand 59 

25.  On  Beam    and    Jack 60 

26.  Power   House       61 

27.  Log  of  Well 64 

28.  Power 64 

29.  Electric  Pumping  Jack 64 

30.  Pumping  From  Three  Sands     ....  65 

31.  Wooden  Storage  Tanks 65 

32.  Tank  Farm 65 

33.  Laying  a  Pipe  Line    . 80 

34.  Loading    Rack 80 

35.  Pumping  Station,  Exterior 81 

36.  Pumping  Station,  Interior 81 

37.  Tank  Steamer 84 

38.  Fuel  Oil  and  Coal 85 

39.  Refinery,    Typical    Layout 90 

40.  Refinery,  General  View 90 

41.  Refinery,    Look    Boxes 91 

42.  Refinery,  Type  Diagram    ......  94 

XIV 


THE  PETROLEUM  INDUSTRY 

Figure  Facing 

Page 

43.  Refinery,  Rear  View  of  Fire  Still     .     .  96 

44.  Refinery,    Steam    Stills 97 

45.  Bartlesville    Station 105 

46.  Casinghead  Gasoline  Plant 128 

47.  Compres^on   Plant       129 

43>     Compression     Diagram     ......  132 

49.  Topping    Plant 136 

50.  Absorption   Plant 136 

51.  Absorption  Tower 136 

52.  Blending  Plant 137 

53.  Gas  Well 137 

54.  First  Railway  Train 176 

55.  First  Electric  Power  Station     ....  176 

56.  Early  Type  of  Automobile 177 

57.  Hydro-Electric    Station 184 

58.  Oil    Engine 185 


XV 


CHAPTER  1 

A  SHORT  HISTORY  OF  PETROLEUM 

The  use  of  Petroleum  is  older  than  human  his- 
tory. Oil  springs  and  oil  seepages  were  known  to 
man  long  before  he  had  developed  the  art  of  writ- 
ing. 

The  Egyptians  used  it  in  embalming  their  dead 
and  it  is  referred  to  in  their  early  writings  dating 
back  many  centuries  before  the  Christian  era. 

Noah  '^'pitched"  his  ark  within  and  without — 
and  today  wooden  ships  are  given  the  same  treat- 
ment. More  than  200  references  are  made  in  the 
Bible  to  the  use  of  oil,  pitch  and  slime. 

Petroleum  was  worshipped  by  the  Zoroastrians 
of  Persia,  known  in  history  as  "Fire  Worshippers." 
The  burning  wells  of  Baku  on  the  west  coast  of  the 
Caspian  Sea  in  southeastern  Russia  were  famous 
objects  of  religious  worship  for  more  than  2,500 
years — long  centuries  before  the  oil  was  used  for 
medicinal  or  commercial  purposes.  Only  within  the 
last  century,  and  to  prevent  the  spread  of  Asiatic 
cholera,  have  the  journeys  of  these  pilgrims  been 

1 


THE  PETROLEUM  INDUSTRY 

prohibited.  In  the  Thirteenth  Century  Marco  Polo 
described  the  "Eternal  Fires"  of  Baku. 

Five  centuries  iDef ore  the  Christian  era  Herod- 
otus described  the  oil  pits  near  Babylon  and  the 
pitch  springs  near  Zante.  Strabo,  Aristotle  and 
Pliny  described  bitumen  deposits  in  Albania  near 
the  Adriatic  Sea,  while  Plutarch  mentioned  petro- 
leum found  on  the  banks  of  the  river  Oxus. 

Alexander  the  Great  saw  the  burning  lake  of 
Ectabana  in  southwestern  Asia  while  on  one  of  his 
world-conquering  expeditions.  Petroleum,  "burn- 
ing water,"  was  known  in  Japan  in  the  seventh 
century.  Early  Chinese  history  contains  references 
to  the  use  of  gas  for  lighting  and  heating.  Burma 
in  southeastern  Asia  has  known  something  of  oil 
for  many   centuries. 

When  Rome  became  a  world-conquering  nation 
she  not  only  controlled  the  oil  supplies  of  the  world 
but  made  liberal  use  of  them.  The  gas  springs  of 
northern  Italy  were  so  well  known  that  in  the  year 
1226  the  town  of  Salsomaggiore,  in  the  neighbor- 
hood of  the  springs,  adopted  as  its  emblem  a  sala- 
mander surrounded  by  flames. 

In  1436  the  medicinal  properties  of  the  oil  of 
Tegernsee  in  Bavaria  gave  it  the  name  of  "St.  Qui- 

2 


THE  PETROLEUM  INDUSTRY 

rinas's  Oil."  The  oil  of  Pechelbrom  was  discovered 
in  1498  and  the  "Earthbalm"  of  Galacia  was  known 
as  early  as  1506. 

Peter  the  Great,  of  Russia,  obtained  from  Per- 
sia, in  1723,  the  control  of  the  Baku  district,  or- 
dered the  seizure  of  as  much  white  petroleum  as 
possible  and  directed  that  a  refining  master  be  sent 
there.  According  to  a  record  in  the  archives  at 
Tiflis  he  also  "give  special  instructions  for  export- 
ing oil  up  the  Volga  River  to  Russia." 

History  cannot  record  when  the  American  In- 
dians first  became  acquainted  with  petroleum 
through  seepages  and  flowing  springs  that  later  led 
to  the  real  "discovery"  of  petroleum  in  1859,  but 
Indian  Medicine  Men  knew  of  its  curative  powers 
and  it  was  held  in  high  esteem  by  them.  They  im- 
parted this  knowledge  to  the  French  Jesuit  Mis- 
sionaries who  in  the  Seventeenth  Century  explored 
Canada,  the  Northern  States  and  the  Mississippi 
Valley,  but  it  was  two  hundred  years  later  that 
white  men  put  it  up  in  bottles  and  sold  it  as  "Sene- 
ca Oil,"  named  after  the  Seneca  Indians. 

The  early  Spanish  Missionaries  of  Mexico  and 
California  found  the  Indians  using  petroleum,  chief- 
ly for  burning  purposes. 

3 


THE  PETROLEUM  INDUSTRY 

Sir  Walter  Raleigh  in  1595  referred  to  the 
pitch  lakes  of  Trinidad,  an  island  off  tlie  coast  of 
Venezuela,  South  America.  From  this  apparently 
inexhaustible  source  has  come  the  asphalt  covering 
of  the  streets  in  hundreds  of  American  cities,  and 
from  these  lakes  of  pitch  millions  of  dollars  of 
wealth  have  been  taken. 

In  1632  reference  was  made  to  the  oil  springs 
of  New  York  in  Sagard's  "History  of  Canada"  in 
which  are  recorded  the  explorations  of  the  Jesuit 
Missionaries  in  that  territory. 

In  the  Seventeenth  Century,  Thomas  Shirley 
called  the  attention  of  the  Royal  Society  of  England 
to  the  natural  gas  in  Wigan,  in  Shropshire.  Her- 
mann Boernaave  in  1724,  referred  in  his  writings  to 
"Oleum  Terrae"  (oil  of  the  earth),  and  about  the 
same  time  "Barbadoes  Tar"  was  well  known  as  a 
medicinal  agent. 

In  1748  Peter  Salm,  a  Russian  traveler,  pub- 
lished a  book  on  America  in  which  he  described  the 
oil  springs  of  Pennsylvania.  David  Leisberger,  a 
Moravian  Missionary,  writing  of  a  visit  to  the  Alle- 
gheny regions  of  Pennsylvania  in  1767  gives  quite  a 
detailed  description  of  its  oil  springs  and  the  meth- 
ods used  by  the  Indians  in  recovering  the  oil  as  well 

4 


THE  PETROLEUM  INDUSTRY 

as  its  uses  for  medicinal  purposes. 

In  1775  George  Washington,  our  first  Presi- 
dent, acquired  three  pieces  of  property  in  "the 
west"  as  it  was  then  known :  one  at  Point  Pleasant, 
Ohio,  one  at  Round  Bottom,  the  present  site  of  Cin- 
cinnati, and  the  third  at  the  mouth  of  the  Kanawha 
river  in  Ohio.  He  referred  to  this  property  as  fol- 
lows :  "This  tract  was  taken  up  by  Gen.  Lewis  and 
myself  on  account  of  the  bituminous  spring  which 
it  contains,  of  so  inflammable  a  nature  as  to  burn 
freely  as  spirits  and  is  nearly  as  difficult  to  ex- 
tinguish." 

In  a  letter  written  by  Gen.  Benjamin  Lincoln 
in  1773  there  is  an  interesting  description  of  Oil 
Creek,  a  small  tributary  of  the  Allegheny  River  in 
northwestern  Pennsylvania,  so  named  because  the 
oil  springs  emptied  into  the  creek  whose  surface 
was  covered  v/ith  the  crude  oil. 

In  1807  F.  Cuming  made  a  tour  of  the  same 
territory  whose  product  was  then  known  as 
''Seneca  Oil"  and  sold  in  bulk  from  $1.50  to  $2.00 
per  gallon.  He  described  the  method  of  recovery 
by  spreading  a  blanket  on  the  surface  of  the  stream 
and  then  wringing  it  out  into  a  vessel.  In  this 
way  about  ten  gallons  a  day  could  be  obtained. 

5 


THE  PETROLEUM  INDUSTRY 

The  first  shipment  of  petroleum  to  Pittsburgh 
was  made  by  a  Mr.  Gary,  an  enterprising  settler  on 
Oil  Creek,  who  bought  up  oil  and  exchanged  it  in 
Pittsburgh,  about  eighty  miles  away,  for  groceries 
for  his  family.  His  shipment  usually  consisted  of 
two  five-gallon  kegs  slung  over  a  ihorse's  back. 
When  perchance  a  flatboatman  happened  to  deliver 
one  or  two  barrels  the  Pittsburgh  petroleum  market 
"went  to  pieces" — and  a  trifle  more  than  a  century 
later  we  are  consuming  a  Half-Billion  Barrels  a 
year  of  this  same  crude  oil  and  developing  uses  for 
its  products  for  which  there  is  no  known  substitute 
obtainable  in  sufR'cient  quantities. 

It  is  remarkable  that  the  early  oil  industry  is 
traceable  to  the  drilling  of  brine  wells  in  Pennsyl- 
vania from  which  large  quantities  of  salt  were 
obtained  by  distillation.  As  many  times  happens, 
people  find  things  that  are  infinitely  more  valuable 
than  those  which  they  are  looking  for — and  it  so 
happened  with  these  "brine  well"  drillers.  When, 
as  occasionally  happened,  they  struck  oil  instead  ol 
salt  water  they  considered  it  a  calamity — today 
when  an  oil  man  strikes  salt  water  instead  of  oil  he 
knows  it  is  a  calamity — strange  how  time  does 
change  our  viewpoint. 

6 


THE  PETROLEUM  INDUSTRY 

In  1818  the  first  flowing  well  in  the  United 
States  was  drilled,  accidentally,  by  David  Beatty 
who  was  drilling  for  brine  in  the  southeastern  cor- 
ner of  Wayne  County,  Kentucky.  The  product  ac- 
tually obtained,  but  not  wanted,  was  contemptuous- 
ly called  "The  Devil's  Tar"  and  allowed  to  flow 
down  the  Big  South  Fork  of  the  Cumberland  River, 
ft  covered  its  surface  for  35  miles  and  later  caught 
fire  with,  disastrous  results  to  adjoining  property. 

Samuel  W.  Kier  of  Tarentum  in  Allegheny 
County,  was  a  chemist  and  druggist  as  well  as  own- 
er of  some  salt  wells  in  which  crude  oil  was  begin- 
ning to  appear.  He  therefore  determined,  about 
1849,  to  turn  his  knowledge  of  chemistry  to  account 
by  finding  out  what  the  oil  was  good  for  as  a  source 
of  illuminating  oil.  He  constructed  a  crude  still, 
the  first  of  one  barrel  capacity  and  later  one  of 
five  barrels,  and  his  product  used  for  lighting  pur- 
poses brought  him  quite  a  local  reputation.  How- 
ever his  greatest  profit  came  from  the  sale  of  petro- 
leum under  the  name  of  "Kier's  Rock  Oil"  which  he 
uniquely  advertised  by  the  use  of  an  imifetion 
American  greenback  showing  a  brine  well  derrick. 
One  of  these  circulars  bore  the  date  of  January  1, 
1852. 

7 


THE  PETROLEUM  INDUSTRY 

Francis  B.  Brewer  graduated  from  Dartmouth 
College,  Hanover,  New  Hamshire  in  1845,  studied 
medicine,  and  in  1850  went  to  the  Oil  Creek  terri- 
tory in  Pennsylvania  where  he  became  a  member 
of  the  lumber  firm  of  Brewer,  Watson  &  Com- 
pany. Noticing  crude  oil  bubbling  from  the  bottom 
of  a  spring  located  a  few  rods  from  their  upper 
saw-mill  he  sent  samples  of  the  oil  to  the  chemical 
laboratory  of  Dartmouth  College  for  analysis.  The 
Professor  of  Chemistry  declared  the  product  held 
useful  properties  and  Dr.  Brewer  left  the  samples 
with  Prof.  Crosby  and  the  display  attracted  much 
attention. 

Geo.  H.  Bissell  who  had  also  graduated  from 
Dartmouth  in  1845  returned  to  the  college  for  a 
visit  in  1853.  While  there  he  saw  the  samples  of 
crude  oil  left  by  Dr.  Brewer  and  became  very  much 
interested.  Upon  his  return  to  New  York  City  he 
discussed  the  matter  with  his  law  associate,  J.  G. 
Eveleth,  and  as  a  result  Eveleth  visited  Titusville 
in  November,  1854.  This  investigation  resulted  in 
the  formation  of  the  Pennsylvania  Rock  Oil  Com- 
pany, December  30,  1854  under  the  laws  of  the  state 
of  New  York.  They  bought  from  Brewer,  Watson 
&  Company  about  100  acres  of  land  including  the  oil 

8 


Q^ 

./■■".  I 

n^^ 

I   "",,,^ 

^^^^^ 

>^^. 

''^^'^wW^. 

■  4 

SI  1 

Edwin  L.  Drake 

Born  —  March     29,     1819 
Died  —  November  9,  1881 


Figure    4 — Some    of    the    early    pioneers    of    the    Petroleum 
Industry. 


Gscrge  H.  Bissell,  one  of 
the  founders  of  the 
Pennsylvania  Rock  Oil 
Company. 


A.  B.  Funk,  who  brought 
in  the  first  flowing 
well     June    1.    1861. 


William  Barnsdall.  who 
drilled  the  second  well 
after  the  Drake  well 
and  sold  an  eighth  in- 
terest to  Abbott  for 
$10,000. 


W  lliam  H.  Abbott  of 
Warren,  Ohio,  who 
helped  finance  the  oil 
refinery  on  the  Parker 
farm   near  Titusville. 


Figure  5  —  Tools  used  by  Drake  in  drillng  the  first  well. 


jH^S' 

^THIfj 

^^ 

ill 

Figure   6 — Drake   Monument   in   Woodlawn   cemetery,   Tltus- 
ville.  Pa. 


THE  PETROLEUM  INDUSTRY 

spring,  paying  $5,000  for  the  property.  Bissell  and 
Eveleth  then  sold  a  large  part  of  the  stock  of  the 
Pennsylvania  Rock  Oil  Company  to  parties  in  New 
Haven,  Connecticut. 

About  the  same  time  other  eastern  capitalists 
became  interested  in  oil  but  would  not  subscribe  for 
stock  in  a  New  York  corporation  so  the  Pennsyl- 
vania Rock  Oil  Company  was  merged  into  a  new 
Pennsylvania  Rock  Oil  Company  which  was  incor- 
porated Sept.  18,  1855  under  the  laws  of  Connecti- 
cut. It  is  interesting  to  note  that  the  original  idea 
of  the  organizers  of  the  Pennsylvania  Rock  Oil 
Company  was  not  to  obtain  oil  by  drilling  wells,  but 
to  gather  it  from  the  surface  of  springs  as  the  In- 
dians had  been  doing  for  centuries.  Little  progress 
was  made  and  in  1857  Mr.  Bissell  happened  to  see 
displayed  in  a  drug  store  window  one  of  the  "green- 
backs" advertising  "Kiers  Rock  Oil."  These  ads 
showed  a  brine  well  derrick  and  stated  that  the  oil 
came  from  400  feet  below  the  surface.  The  idea 
flashed  into  Mr,  Bissell's  mind  of  using  the  brine 
well  drilling  outfit  to  drill  for  oil  and  he  discussed 
the  matter  with  his  associate,  Eveleth,  Both  ap- 
proved the  plan  but  not  being  in  position  to  finance 
it  submitted  it  to  a  Mr.  Havens  of  New  York  who 

9 


THE  PETROLEUM  INDUSTRY 

offered  them  $500  if  they  would  get  a  lease  on  the 
property  from  the  Pennsylvania  Rock  Oil  Company. 
The  lease  was  finally  obtained,  Havens  agree- 
ing to  begin  operations  within  a  year  and  to  pay  12 
cents  a  gallon  royalty  on  all  oil  produced  in  15  yearsj- 
Havens  failed  to  fulfill  his  contract  and  the  capi- 
talists who  went  into  the  company  when  it  was  or- 
ganized under  the  laws  of  Connecticut,  acting 
against  the  wishes  of  the  other  directors,  made  a 
lease  to  E.  E.  Bowditch  and  E.  L.  Drake  at  a  royal- 
ty of  51/2  cents  a  gallon.  This  lease  however  was 
soon  changed  to  12  cents  a  gallon  for  a  period  of 
45  years  and  with  this  lease  as  a  basis  the  Seneca 
Oil  Company  was  formed  March  23,  1858.  Drake 
who  then  lived  in  New  Haven,  Connecticut  owned 
some  656  shares  in  the  company,  was  a  Director 
and,  as  Superintendent,  agreed  to  oversee  the  de- 
velopment of  the  property  at  a  salary  of  $1,000  a 
year.  After  arriving  in  Titusville  with  his  family 
May  1,  1858  he  gave  little  attention  to  gathering  oil 
from  the  surface  of  streams  but  was  determined  to 
obtain  it  by  drilling  a  well.  He  ordered  an  engine 
and  expected  to  begin  drilling  in  September  but 
delay  in  its  delivery  postponed  work  until  the  spring 
of  1859. 

10 


THE  PETROLEUM  INDUSTRY 

The  driller  first  engaged  failed  to  appear ;  like- 
wise the  second ;  and  at  the  suggestion  of  S.  M. 
Kier  of  ^'Kier's  Rock  Oil"  fame,  Drake  engaged 
"Uncle  Billy"  Smith  and  his  two  sons,  experienced 
brine  well  "borers."  Most  of  the  tools  used  in 
drilling  the  well  came  from  Kier's  shop  at  Taren- 
tum.  Drake  had  formed  Kier's  acquaintance  on  his 
first  trip  to  Titusville  in  December  1857.  This  trip 
was  made  at  the  instance  of  James  M.  Townsend, 
a  banker  of  New  Haven,  and  at  that  time  President 
of  the  Board  of  Directors  of  the  Pennsylvania  Rock 
Oil  Company — and  was  for  the  purpose  of  finding 
out,  for  the  New  Haven  stockholders,  the  exact 
condition  of  affairs  at  Titusville.  It  was  Town- 
send  who  had  previously  induced  Drake  to  invest 
$200  in  the  stock  of  the  Pennsylvania  Rock  Oil  Com- 
pany. 

After  harassing  delays,  work  was  finally  begun 
May  20,  1859.  So  much  water  was  encountered  in 
the  surface  soil  that  Drake  finally  decided  to  drive 
heavy  iron  pipe  to  bed  rock  which  was  found  at  36 
feet.  Smith  and  his  two  sons  arrived  in  Titusville 
in  June  and  after  about  two  months'  work  oil  was 
struck  at  69  V2  feet  on  Saturday  afternoon  August 
27,  1859.    The  well  never  flowed  but  was  pumped, 

11 


THE  PETROLEUM  INDUSTRY 

the  initial  production  being  about  30  barrels  a  day. 
It  is  estimated  that  the  well  produced  about  2,000 
barrels  between  Aug.  27  and  Dec.  31,  1859.  Kier 
agreed  to  purchase  one-third  of  the  oil  and  the  re- 
mainder was  to  be  sold  by  G.  M.  Mobray  on  com- 
mission. 

While  others  were  busy  leasing  land  and  drill- 
ing wells  Drake  settled  down  to  pumping  his  first 
and  only  well.  In  1860  he  was  elected  Justice  of 
Peace  of  Titusville,  the  office  paying  about  $3,000  a 
year.  He  also  bought  oil  for  Shefflin  Brothers  of 
New  YorR  City,  his  commissions  amounting  to 
about  $2,000  a  year.  Drake  bought  from  Jonathan 
Watson  25  acres  on  the  edge  of  Titusville  for  about 
$2,000  and  when  the  mortgage  came  due  sold  it  for 
$12,000.  Drake  Street  now  runs  through  that  sec^ 
tion  of  the  city  and  the  property  is  worth  a  half- 
million  dollars. 

Drake  left  the  oil  fields  in  1863  with  about 
$15,000,  went  to  New  York  City  and  lost  it  all  in 
other  ventures.  He  and  his  family  lived  in  want  for 
years  and,  broken  in  health  and  spirit,  he  probably 
would  have  died  in  poverty  had  not  some  of  his  old 
friends  accidentally  learned  of  his  condition.  They 
raised  a  purse  of  $4,200  and  in  1873  the  Pennsyl- 

12 


THE  PETROLEUM  INDUSTRY 

vania  Legislature  granted  him  a  pension  of  $1,500  a 
year.  This  enabled  him  to  live  in  reasonable  com- 
fort until  his  death  in  Bethlehem,  Pennsylvania,  No- 
vember 9,  1881.  Thus  passed  the  man  who  is  uni- 
versally referred  to  as  "THE  FOUNDER  OF  THE 
PETROLEUM  INDUSTRY." 


13 


CHAPTER  II 

OIL  FIELDS  OF  THE  UNITED  STATES 

From  the  Drake  well  in  1859  that  came  in  at 
about  30  barrels  a  day,  the  petroleum  industry  has 
grown  to  a  world  production  of  over  688,000,000 
barrels  in  1920. 

Imagine  a  channel  100  feet  wide,  50  feet  deep 
and  146  miles  long,  filled  to  the  brim  with  crude  pe- 
troleum and  you  will  "see"  what  the  world  produc- 
tion amounted  to  in  1920. 

Imagine  every  factory  in  America,  every  loco- 
motive, every  freight  car,  every  passenger  car, 
every  automobile,  every  motor  truck,  every  farm 
tractor,  every  aeroplane,  every  passenger  steam- 
ship, every  freight  steamship  and  every  battleship 
passing  before  your  eyes,  one  at  a  time,  and  you  will 
then  have  some  idea  of  what  the  word  "Lubrica- 
tion" means  in  America — because  every  one  of  these 
would  instantly  stop  unless  constantly  lubricated — 
and  up  to  the  present  time  no  substitutes  have  been 
found  for  the  lubricants  obtained  from  petroleum. 

14 


THE  PETROLEUM  INDUSTRY 

Or  take  the  one  item  of  automobiles  and  motor 
trucks:  imagine  every  automobile  and  every  mo- 
tor truck  "in  the  United  States  January  1,  1921, 
lined  up  in  a  straight  line,  end  to  end  and  allowing 
15  feet  to  each — the  line  would  be  25,000  miles  long 
— long  enough  to  reach  once  around  the  world. 

The  gasoline  consumed  by  the  automobiles  and 
motor  trucks  of  the  United  States  in  1920  amounted 
to  4,018,000,000  gallons— but  in  order  to  "see"  this 
amount,  imagine  a  channel  100  feet  wide,  50  feet 
deep  and  20  miles  long  filled  with  sparkling  gaso- 
line. At;  25  cents  a  gallon  it  would  take  an  even 
Billion  Dollars  to  pay  for  it — a  good-sized,  gasoline 
bill  for  one  year. 

The  next  morning  after  the  Drake  well  came  in 
Jonathan  Watson,  of  the  lumber  firm  of  Brewer, 
Watson  &  Co.,  rode  horseback  to  the  Washington 
McClintock  farm,  the  Rynd  farm  and  the  Frances 
McClintock  farm,  secured  an  oil  lease  on  each  farm, 
went  into  the  oil  business  and  although  he  soon  l)e- 
came  wealthy,  afterwards  lost  it  all. 

William  Barnsdall,  of  Titusville,  is  credited 
with  drilling  the  second  well,  beginning  the  drilling 
the  day  th"e  Drake  well  struck  oil.  Before  this  well 
was  completed  however  W.  H.  Abbott  of  Warren, 

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THE  PETROLEUM  INDUSTRY 

Ohio  arrived  on  the  ground  and  bought  an  eighth 
interest  in  the  well  for  $10,000.  Abbott  later  helped 
build  the  first  refinery  in  the  Oil  Creek  region,  lo- 
cated on  the  Parker  farm,  a  mile  below  Titusville. 
Later  Abbott  became  interested  in  the  Allegheny 
Transportation  Pipe  Line  Company  which  gathered 
the  larger  amount  of  the  oil  in  the  Oil  Creek  field. 
The  first  flowing  well  in  this  district  was  drilled  by 
A.  B.'^Funk,  June  1,  1861,  to  a  depth  of  400  feet.  It 
was  nameH  the  "Fountain  Well."  The  second  flow- 
ing well  was  drilled  by  John  Fertig  July  4,  1861  and 
came  in  at  300  barrels  a  day.  David  Crosby  helped 
start  the  third  well,  William  Barnsdall  being  in- 
terested with  him.  George  K.  Anderson  arrived  in 
the  Oil  Creek  region  in  1863  as  general  superin- 
tendent of  the  Columbia  Farm  Oil  Company.  He 
however  purchased  two  leases  from  the  Central 
Petroleum  Company,  drilled  two  wells,  both  of 
which  were  good  producers,  and  in  a  short  time  had 
an  income  of  $1,400  a  day.  J.  W.  Sherman  drilled 
the  first  "gusher"  near  the  banks  of  Oil  Creek— it 
produced  about  2,000  barrels  a  day.  William  Phil- 
lipps  of  Tarr  Farm  drilled  in  a  4,000-barrel  well  in 
September    1861.      N.    S.    Woodford    completed    a 

18 


THE  PETROLEUM  INDUSTRY 

3,000-barrel  well  on  the  same  farm  in  December 
1861.  By"  turning  to  Table  3  you  can  see  how  the 
Pennsylvania-New  York  field  grew  until  in  1891  it 
produced  more  than  33,000,000  barrels,  from  which 
it  gradually  declined  to  about  8,000,000  barrels  in 
1920. 


Table  2  —  Oil  fields  of  the  United  States,  ivith 
production  from  1859  to  1920. 

Field  Barrels  %  of 

Produc- 
tion 

Appalachian   1,281,581,501  23.6% 

Lima-Indiana 455,028,084  8.4 

Illinois 321,433,880  5.9 

Mid-Continent    1,617,706,677  29.8 

Gulf  Coast    353,830,919  6.5- 

Rocky   Mountain 82,653,582  1.5 

California 1,317,458,576  24.3 


Totals 5,429,692,719     100.0% 


West  Virginia  began  producing  about  1865  and 
reached  its  greatest  production  in  1900  with  over 
16,000,0000  barrels. 

19 


THE  PETROLEUM  INDUSTRY 

Ohio  produced  in  a  small  way  from  18T6  to 
1885  when  the  Lima  field  came  in.  The  banner  year 
was  1896  with  almost  24,000,000  barrels. 

Illinois  became  productive  in  a  small  way  early 
after  Pennsylvania  but  decreased  until  in  1903  and 
1904  nothing  is  recorded.  In  1905  a  35-barrel  well 
in  Clark  County  started  the  boom.  In  1906  the  pro- 
duction jumped  to  over  4,000,000  barrels.  The  high 
year  was  1910,  with  over  33,000,000  barrels. 

California  is  said  to  have  produced  oil  about 
1860  but  only  in  small  quantities.  According  to  the 
Standard  Oil  Company  a  Mexican  hunter  in  1865 
found  seepages  in  Eos  Angeles  County,  news  of 
which  reached  Dr.  Gelsich  a  former  resident  of  the 
Pennsylvania  oil  fields  then  living  in  California. 
He  promptly  formed  a  company,  staked  out  claims 
and  a  well  was  drilled  in  1870,  coming  in  at  about 
70  barrels  a  day.  The  drilling  was  by  the  old 
"spring-pole"  method,  replaced  in  1879  by  a  steam 
engine  which  is  still  on  the  property.  In  1919  this 
well  (49  years  old)  was  producing  three  barrels  a 
day.  The  state  did  not  get  into  the  "million-barrels- 
a-year"  class  until  1895 — but  in  1919  it  passed  the 
"hundred-Tnillion-barrels-a-year"  mark. 

20 


THE  PETROLEUM  INDUSTRY 

Kentucky  became  an  important  producing  state 
in  1916  with  more  than  a  milHon  barrels  a  year. 
Oil  lias  been  produced  there  since  the  first  acciden- 
tally drilled  flowing  well  in  America  in  1818.  The 
development  lagged  until  1903  when  it  reached  a 
half-million  barrels,  passed  the  million  barrel  mark 
in  1905  and  1906  from  which  it  dropped  to  an  aver- 
age of  about  a  half-million  barrels.  Beginning  with 
1916  the  production  has  steadily  increased,  going 
over  3,000,000  barrels  in  1917,  to  over  9,000,000  in 
1919  and  8,000,000  barrels  in  1920.  As  the  produc- 
tion in  Tennessee,  until  recently,  has  been  negligible 
in  amount  the  state's  production  has  been  included 
with  Kentucky. 

Colorado  in  1887  produced  about  75,000  barrels 
of  crude  oil,  reached  its  peak  in  1892  with  824,000 
and  today  is  producing  little  more  than  100,000 
barrels. 

Indiana  in  1889,  was  producing  over  33,000 
barrels,  the  first  scattering  wells  being  drilled  some 
years  before.  The  maximum  production  was 
reached  in  1904  with  over  11,000,000  barrels. 

Kansas  officially  entered  the  ranks  of  oil  pro- 
ducing states  in  1889  and  reached  the  "milTion- 
barrel"  class  in  1904.    The  large  showing  for  1905 

21 


THE  PETROLEUM  INDUSTRY 

and  1906  resulted  from  including  the  Oklahoma 
production  wflh  Kansas.  It  produced  over  29,000,- 
000  barrels  in  1919  and  over  38,000,000  barrels  in 
1920.  While  about  twenty  counties  in  the  south- 
eastern corner  of  the  state  produce  practically  all 
of  the  oil,  the  majority  of  it  has  come  from  the 
Butler  County  fields.  In  this  one  county  are  the 
ElDorado  field  that  in  1920  produced  over  14.000,- 
000  barrels,  the  Augusta  field  with  over  4,000,000 
and  the  Towanda,  Peabody  and  Florence  fields  (the 
latter  two  just  across  the  county  line  to  the  north) 
with  almost  9,000,000  barrels.  The  ElDorado,  Au- 
gusta and  Towanda  fields  came  into  large  produc- 
tion during  1916  and  1917  and  to  the  end  of  1B19 
had  produced  100,000,000  barrels  of  oil  from  about 
40  square  miles,  or  an  average  of  4,000  barrels  per 
acre.  The  ElDorado  shallow  oil  sand  lies  from  650 
to  850  feet  deep,  the  Augusta  gas  sand  at  1,450 
feet,  an  upper  oil  sand  at  1,750  feet  while  the  "Var- 
ner"  oil  sand,  the  best  producer,  lies  at  about  2,450 
feet.  This  county  has  produced  the  largest  wells  of 
the  Mid  Continent  field,  many  of  them  giving  from 
12,000  to  15,000  barrels  a  day.  The  famous  "Trap- 
shooter"  well  has  produced  over  2,250,000  barrels 
of  oil. 

22 


THE  PETROLEUM  INDUSTRY 

The  ElDorado,  Kansas,  field  has  actually  been  a 
realization  of  the  dreams  of  the  early  explorers  of 
the  Mississippi  Valley  who  sought  a  legendary  El- 
Dorado,  "City  of  Gold,"  for  through  the  years  its 
thousands  of  oil  wells  have  been  pouring  out  black 
streams  of  liquid  gold. 

Texas  had  some  scattering  wells  as  far  back  as 
1889  but  the  production  was  negligible  until  1898 
when  it  passed  the  half-million  mark.  Three  years 
later  this  increased  to  over  4,000,000,  the  next  year 
to  18,000,000  and  in  1920  the  state  produced  over 
96,000,000  barrels. 

The  oil  history  of  Texas  has  been  spectacular — 
January  10,  1901  the  famous  discovery  well  "Spin- 
dletop,"  near  Beaumont,  came  in  at  100,000  barrels 
a  day,  ran  wild  for  ten  days  before  it  could  be  gotten 
under  control  and  it  is  estimated  that  probably  a 
million  barrels  of  oil  were  lost.  The  well  was  1,150 
feet  deep,  cost  less  than  $6,000  and  opened  up  an  oil 
territory  that  up  to  1921  had  produced  over  400,- 
000,000  barrels  of  oil. 

October  7,  1917  the  Texas  Pacific  Oil  Company 
brought  in  the  discovery  well  near  Ranger  in  north 
central  Texas  on  W.  L.  Mcl^lesky's  farm.  McClesky 
died  about  two  years  later  leaving  an  estate  ap- 

23 


THE  PETROLEUM  INDUSTRY 

praised  at  $7,000,000.  The  drilling  in  of  this  well 
was  followed  by  an  oil  boom  as  great  as  at  Spindle- 
top. 

In  1918  the  discovery  well  was  drilled  in  at 
Burkburnett  and  another  wild  rush  was  on.  After 
these  first  maddened  waves  of  frenzied  drilling  sub- 
side these  boom  towns  and  boom  territories  quiet 
down  to  "normal"  oil  life — but  "gushers"  certainly 
play  havoc  with  staid,  conservative  habits  of  think- 
ing and  living.  It  is  estimated  that  the  Electra- 
Burkburnett  field,  opened  in  1911,  produced  up  to 
the  end  of  1919  about  90,000,000  barrels  of  oil, 
thereby  placing  it  in  the  ranks  of  big  American 
fields. 

Louisiana,  as  compared  with  the  other  states, 
started  its  production  off  "big"  with  over  half-a- 
million  barrels  in  1902.  This  was  due  however  to 
the  great  Spindletop  boom  near  Beaumont,  Texas. 
In  1904  the  production  had  jumped  to  nearly  3,000,- 
000  barrels,  in  1905  to  nearly  9,000,000,  while  in 
1920  the  state  produced  over  35,000,000  barrels. 

Missouri  has  produced  a  little  oil  for  over  thir- 
ty years,  and  while  an  increasing  amount  of  ex- 
ploration work  has  been  carried  on,  little  hope  is 
entertained  of  Its  ever  becoming  an  important  oil 
producing  state. 

24 


a, 


Figure  10  —  A  oOO,000-barrel  lake  of  oil  in  Glenn  Pool,  Okla- 
homa. Earthen  storage  results  in  enormous  "invisible 
losses"  of  gasoline  vapors. 


THE  PETROLEUM  INDUSTRY 

Oklahoma  was  an  oil  producer  while  still  known 
as  Indian  Territory — today  it  ranks  as  the  leading 
oil  state  in  the  Union  with  a  production  of  over 
107,000,000  barrels  in  1920.  Osage  County  alone 
produced  over  20,000,000  barrels  in  1920— Carter 
County  over  19,000,000  barrels — Creek  County  over 
19^,000,000  barrels — ^nd  Okmulgee  County  over 
17,0D0,000  barrels.  Thus  it  is  seen  that  four  Okla- 
homa counties,  in  1920,  produced  75,000,000  barrels 
of  crude  oil,  or  about  11%  of  the  amount  produced 
by  the  entire  world,  while  the  state  produced  over 
15%  of  the  world's  output. 

denn  Pool,  near  Sapulpa,  was  opened  Novem- 
ber 22,  1905  with  an  85-barrel  well,  and  from 
March  1907  to  May  1911  the  output  of  the  field 
ranged  Trom  1  to  2V2  million  barrels  per  month. 
Up  to  the  end  of  1919  Glenn  Pool  had  produced 
153,000,000  barrels  of  oil  from  an  area  of  30  square 
miles,  or  an  average  for  the  entire  area  of  8,000 
barrels  per  acre,  while  some  parts  of  it  have  pro- 
duced 16,000  barrels  per  acre.  Most  of  the  oil 
comes  from  the  "Glenn"  sand  at  a  depth  of  about 
1,500  feet. 

Gushing  field,  about  10  miles  east  of  the  town 
of  Gushing,  was  discovered  in  March  1912  and  up 

26 


THE  PETROLEUM  INDUSTRY 

to  the  end  of  1919  had  produced  236,000,000  barrels 
of  oil  from  an  area  of  36  square  miles,  or  an  average 
of  10,000  barrels  per  acre.  Most  of  the  oil  comes 
from  the  "Bartlesville"  sand,  about  200  feet  thick 
and  lying  at  a  depth  of  about  2,600  feet.  The  Gush- 
ing field  has  also  been  one  of  the  chief  gas  fields  of 
the  world.  Practically  all  of  the  sands  contain 
some  gas,  some  of  which  is  under  up  to  900  pounds 
pressure  to  the  square  inch.  The  gas  was  so  plenti- 
ful that  it  gave  a  great  deal  of  trouble  to  the  oil 
well  drillers.  In  1914  thirty-six  gas  wells  were 
drilled  with  a  combined  initial  capacity  of  608,000,- 
000  cubic  feet  a  day  and  in  1916  the  initial  capacity 
of  the  new  gas  wells  drilled  amounted  to  one  billion 
cubic  Jeet  a  day.  The  waste  of  gas  in  this  field  was 
enormous  and  during  part  of  1913  and  1914  it  was 
estimated  to  have  been  a  half-billion  cubic  feet  a 
day. 

The  Healdton  field,  in  southern  Oklahoma,  was 
opened  in  1913  and  to  the  end  of  1919  had  produced 
126,000,000  barrels  of  oil  from  an  area  of  13  square 
miles,  or  an  average  of  15,000  barrels  per  acre. 
The  oil  from  this  field  is  darker  and  heavier  than 
that  of  northern  Oklahoma  and  comes  from  an  en- 
tirely different  "System"  of  rocks:   the  "Permian" 

27 


THE  PETROLEUM  INDUSTRY 

— while  practically  all  of  the  remainder  of  the  oil 
of  Oklahoma  comes  from  the  "Pennsylvanian"  sys- 
tem. The  price  of  Healdton  crude  is  substantially 
less  than  that  of  the  remainder  of  the  state. 

Wyoming  began  producing  about  1894  but 
never  became  a  real  producer  until  19^12  when  it 
passed  the  "million-barrels-a-year"  mark,  with 
over  2,000,000  barrels  in  1913,  reached  19,000,000 
barrels  in  1919  and  dropped  to  nearly  17,000,000 
barrels  in  1920. 

Montana  became  a  producer  about  1916  and 
in  1920  produced  about  347,000  barrels.  A  great 
deal  of  exploration  work  and  "test  well"  drilling  is 
being  done  in  both  Montana  and  Wyoming. 

Arkansas  is  the  newest  state  to  enter  the  ranks 
of  oil  producers  with  the  discovery  well  near  El- 
Dorado,  January  10,  1921.  At  the  date  of  this  writ- 
ing the  boom  is  growing  and  there  is  every  indica- 
tion that  this  is  a  real,  new  oil  field.  The  produc- 
tion for  the  state  in  March  1921  was  10,000  barrels, 
in  April,  300,000  barrels  and  by  the  middle  of  June 
the  ElDorado  field  was  averaging  3^,000  barrels  a 
day.  The  water  trouble  that  menaced  the  first  wells 
had  been  reduced  to  about  one  percent.  ElDorado 
has  all  of  the  characteristics  of  an  oil  tov/n  during 

28 


THE  PETROLEUM  INDUSTRY 

the  first  few  months  of  its  boom  life  when  every- 
thing is  sky-high — leases  and  royalties  especially  so, 
with  many  of  them  of  uncertain  value,  shortage  of 
oil  storage  tanks  and  pipe  line  connections,  rail- 
roads congested  and  everybody  struggling  to  get 
ahead  of  or  at  least  keep  up  with  everybody  else. 
However  this  may  appeal  to  others,  the  old-timer 
in  oil,  knows  that  it  is  an  inseparable  part  of  the 
development  of  a  new  oil  field.  To  him  this  condi- 
tion is  "the  same  old  story" — and  sooner  or  later, 
from  this  apparent  chaos  there  always  emerge  some 
well  ordered,  substantial,  profitable  oil  businesses. 

Alaska  is  geologically  very  similar  to  Califor- 
nia but  as  yet  little  more  than  general  exploration 
work  has  been  done  to  learn  the  probable  presence 
of  oil  and  gas  in  commercially  paying  quantities. 
There  are  numerous  oil  and  gas  seepages  in  a  num- 
ber of  districts  but  up  to  the  present  timxe  little  or 
no  actual  development  work  has  been  done.  Even 
though  oil  in  quantities  were  found  the  real  prob- 
lem would  be  transportation  to  refineries  in  Alaska 
or  to  tide  water  to  tank  steamers. 

The  foregoing  states  are  the  only  ones  that  are 
usually  classed  as  "oil  producing,"  yet  within  the 
last  few  years,  owing  to  the  constantly  increasing 

29 


THE  PETROLEUM  INDUSTRY 

demand  for  more  and  still  more  oil,  there  are  but 
few  states  in  which  "test  wells"  are  not  now  being 
drilled. 

While  our  best  petroleum  statisticians  and  the 
seasoned  oil  men  with  broad  and  far-reaching  vision 
cannot  tell  when  the  United  States  will  reach  its 
peaR  of  oil  production  which  has  recently  been  in- 
creasing by  thirty,  forty  and  fifty  million  barrels 
a  year,  the  fact  remains  that  some  day  that  point 
will  be  reached.  This  fact  however  should  not  be  a 
matter  oT  alarm  as  it  is  now  definitely  known  that 
several  foreign  countries  have  vast  and  practically 
untouched  oil  reserves  which  assure  an  adequate 
supply,  far  into  the  future.  The  real  question  is 
not  so  much  "Is  it  there?"  as,  "Who  will  control  it?" 
— and  unless  foreign  governments  arbitrarily  bar 
American  oil  men  from  their  oil  fields  we  can  de- 
pend upon  American  agressiveness  and  resource- 
fulness to  secure  for  us  a  fair  share  of  the  world's 
future  oil  supply. 

This  world-wide  oil  development  which  is 
rapidly  taking  definite  form  does  not  include  the 
vast  potential  oil  resources  that  are  today  locked 
up  in  the  shale  deposits  of  Colorado,  Utah  and  Wy- 
oming that  only  await  the  pinch  of  necessity  to  be 

30 


THE  PETROLEUM  INDUSTRY 

transformed  into  all  of  the  products  we  are  today 
obtaining  from  the  petroleum  that  flows  from  our 
oil  wells.  The  potential  supply  of  petroleum  from 
these  deposits  is  so  vast  that  it  is  estimated  that 
they  will  produce  at  least  ten  times  as  much  petro- 
leum as  has  been  taken  from  our  oil  wells. 

In  order  to  get  a  clear  grasp  of  the  develop- 
ment of  each  oil  producing  state  as  well  as  of  the 
United  States  as  a  whole,  turn  to  Table  3  and  note 
the  total  production  of  each  state  to  and  including 
the  year  192D.  The  total  for  the  United  States  in 
1920  was  443,000,000  barrels  while  the  production 
for  the  United  States  from  1859  to  1920  amounts 
to  the  enormous  total  of  over  5,400,000,000  (five 
billion,  four  hundred  million),  barrels.  These  fig- 
ures, as  figures,  are  wholly  meaningless — so  let  us 
suppose  that  this  oil  flowed  into  a  channel  100  feet 
wide  and  50  feet  deep — it  would  be  1,150  miles  long. 

In  proof  of  the  wonderful  growth  of  the  oil 
industry  in  the  United  States  in  recent  years  it  is 
interesting  to  note  that  of  the  5,400,000,000  barrels 
produced  from  1859  to  1920  there  were  produced 
during  the  last  ten  years  of  this  period  slightly 
more  than  3,000,000,000  barrels.  In  other  words 
44%  of  our  oil  w^as  produced  during  the  first  52 

31 


THE  PETROLEUM  INDUSTRY 

years  while  56%  was  produced  during  the  last  ten 
years. 

In  the  light  of  this  marvelous  growth  who  can 
forecast  the  demand  for  oil  during  the  next  ten 
years? 


32 


C3 

s 

O 

ji 
O 


Pi 


u 


Figure  14  —  Outcropping  of  shale  beds  of  Colorado,  with 
estimated  potential  resources  far  in  excess  of  the  present 
oil  fields  of  the  United  States. 


Table  3  —  Petroleum  produced  in  "»<^  United  States,  1859  to  1920,  in  barrel.i  of  42  gallona. 


Year 

1859 
1860 
1861 
1862 
1863 
1864 
1865 

Pennsyl- 
vania and 
New  York 

2,000 
500,000 
2,113,609 
3,056,690 
2,611,309 
2,116,109 
2,497,700 

3,597,700 
3,347,300 
3,646,117 
4,215,000 
5,260,745 

5,205,234 
6,293,194 
9,893,786 
10,926,945 
8,787,514 

8,968,906 
13,135,475 
15,163,462 
19,685,176 
26,027,631 

27,376,509 
30,053,500 
23,128,389 
23,772,209 
20,776,401 

25,798,000 
22,356  193 
16,488,668 
21,487,435 
28,458,208 

33,009,236 
28,422,377 
20,314,513 
19,019,990 
19,144,390 

20,584,421 
19,262,066 
15,948,464 
14,374,512 
14,559,127 

13,831,996 
13,183,610 
12,518,134 
12,239,026 
11,554,777 

11,500,410 
11,211,606 
10,584,453 
10,434,300 
9,848,500 

9,200,673 
8,712,076 
8,865,493 
9,109,309 
8,726,483 

8,466,481 
8,612,885 
8,216,655 
8,988,000 
8,344,000 

805,534,717 

Ohiu 

West 
Virginia 

California 

Kentucky 
and 

Tenne.ssee 

Colorado 

Indiana 

Illinois 

Kansas 

Texas 

Oklahoma 

Wyoming 

Louisiana 

Others 

"    "26 
278 

25 

10 
50 
8 
10 

43 

19 

10 

132 

1,602 

2,335 
757 
3.000 
2,572 
3,100 

3,500 
4,000 
15,246 
5.750 
3,615 

7,995 

'i6,8'43 
7,792 
14.265 

52,622 
109,699 

77,266 
102,000 
353,000 

781,564 

United 
States 

2,000 
500,000 
2,113,609 
3,056,690 
2,611,309 
2,116,109 
2,497,700 

3,597,700 
3,347,300 
3,646,117 
4,215,000 
5,260745 

5,205,234 
6,293,194 
9,893,786 
10,926,945 
8,787,514 

9,132,669 
13,350,363 
15,396,868 
19,914,146 
26,286,123 

27,661,238 
30,349,897 
23.449,633 
24,218,438 
21,858.785 

28,064,841 
28,283,483 
27,612,025 
35,163,513 
45,823,572 

54,292.655 
50,514,657 
48,431,066 
49,344,516 
52,892,276 

60,960,361 
60,475,516 
55,364,233 
57,070,850 
63,620,529 

69,389.194 
88.766.916 
100.461.337 
117,080,960 
134,717,580 

126,493,936 
166,095,335 
178,527,355 
183,170,874 
209,557,248 

220,449,391 
222,935,044 
248,446,230 
265,762,535 
281,104,104 

300,767,158 
335,315,601 
355,927,716 
378,367,000 
442,929,000 

Total 
Value 

$           32,000 
4,800,000 
1,035,668 
3,209,525 
8,225,663 
20,896,576 
16,459,853 

13,455,398 
8,066,993 
13,217,174 
23,730,450 
20,503,754 

22,591,180 
21,440,503 
18,100,464 
12,647,527 
7,368.133 

22,982.822 
31.788.566 
18.044.520 
17.210,708 
24,600.638 

25.448.339 
23.631.165 
26,790,252 
20.595.966 
19,198,243 

19,996,313 
18,877,094 
17,947,620 
26,963,340 
35,365,105 

30,526,553 
25,906,463 
28,950,326 
35.522,095 
57,632,296 

58,518,709 
40,874.072 
44,193,359 
64,603,904 
75,989,313 

66,417,335 
71,178,910 
94,694,050 
101,175,455 
84,157,399 

92,444,735 
120,106,749 
129,079,184 
128,328,487 
127,899,688 

134,044,752 
164,213,247 
237,121,.388 
214,12i.215 
179,462,890 

330,899,868 
522,635,213 
703,943,961 
775,000,000 
1,360,000,000 

16,663,867,168 

Year' 

1861 

1862 

1863 

1864 

1865 

1866 

1867 

1868 

1869 

1870 

1871 

1871 

1872 

1872 

1873 

1873 

1874 

1874 

1875 

1875 

1876 

31,763 
29,888 
38,179 
29,112 
38,940 

33,867 
39,761 
47,632 
90,081 
661,580 

1,782,970 
5,022,632 
10,010,808 
12,471,466 
16,124,656 

17,740,301 
16,362,921 
16,249,769 
16,792,154 
19,545,233 

23,941,169 
21,660,515 
18,738,708 
21,142,108 
22,362,730 

21,648,083 
21,014,231 
20,480,286 
18,876,631 
16,346,600 

14,787,763 

12,207,448 

10,858,797 

10,632,793 

9,916,370 

8,817,112 

8,969,007 

8,781,468 

8,536,3.52 

7,825,326 

7,744,511 
7,750,540 
7,285,005 
7,736,000 
7,400,000 

478,503,386 

120,000 
172,000 
180,000 
180,000 
179,000 

151,000 
128,000 
126,000 

12,000 
13,000 
15,227 
19,858 
40,552 

99,862 
128,636 

142,857 

1876 

1877 

x877 

1878 

1878 

1879 

1879 

1880 

1880 

1881 

1881 

1882 

1882 

188a 

4,755 

1888 

1884 

90,000 
91,000 

102,000 
145,000 
119,448 
544,113 
492,578 

2,406,218 
3,810,086 
8,445,412 
8,577,624 
8,120,125 

10,019,770 
13,090,045 
13,615,101 
13,910,630 
16,195,675 

14,177,126 
13,513,345 
12,899.395 
12,644,686 
11,578,110 

10,120,935 
9,095,296 
9,523,176 
10,745,092 
11,753,071 

9,795,464 

12,128,962 

11,567,299 

9,680,033 

9,264,798 

8,731.184 
8,379,285 
7,866.628 
8,327,000 
8,249,000 

262,000 

325,000 

377,145 
678,572 
690,333 
303,220 
307,360 

323,600 
385,049 
470,179 
705,969 
1,208,482 

1,252,777 
1,903,411 
2,257,207 
2,642,095 
4,324,484 

8,786,330 
13,984,268 
24,382,472 
29,649,434 
33,427,473 

33,098,598 
39,748,375 
44,854,737 
55,471,601 
73,010,560 
81,134,391 
87,272,593 
97,788,525 
99,775,327 
86,591,535 

90,951,936 
93,877,549 
97,531,997 
101,183,000 
103,377,000 

4,148 
5,164 

4,726 
4,791 
5,096 
5,400 
6,000 

9,000, 
6,500 
3,000 
1,500 
1,500 

1,680 
322 

5,568 
18,280 
62,259 

137,259 
185,331 
554.286 
998,284 
1,217,337 

1,213,548 
820,844 
727,767 
639,016 
468,774 

472,458 
484,368 
524,568 
502,441 
437,274 

1,203,246 
3,100,356 
4,376,342 
9,293,000 
8,752.000 

1884 

1885 

1.... 

1885 

1886 

1886 

1887 

76,295 
297,612 
316,476 
368,842 

665,482 
824,000 
594,390 
515,746 
438,232 

361,450 
384,934 
444,383 
390,278 
317,385 

460,520 
396,901 
483,925 
501,763 
376,238 

327,582 
331,851 
379,653 
310,861 
239,794 

226,926 
206,052 
188,799 
222,773 
208,475 

197,235 
121,231 
143,286 
121,000 
111,000 

1887 

1888 

1888 

1889 

33,375 
63,496 

136,634 

698,068 

2,335,293 

3,688,666 

4,386,132 

4,680,732 
4,122,356 
3,730,907 
3,848,182 
4,874,392 

5,757,086 
7,480,896 
9,186,411 
11,339,124 
10,964,247 

7,673,477 
5,128,037 
3,283,629 
2,296,086 
2,159,725 

1,695,289 
970,009 
956,095 

1,335,456 
875,758 

769,036 
759,432 
877,558 
972,000 
945,000 

1,460 
900 

675 
521 
400 
300 
200 

250 
500 
360 
360 
200 

250 

200 

500 
1,200 

1,400 

5,000 

18,000 

40.000 

44,300 

113,571 
81,098 
71,980 
69,700 
74,714 

179,151 

331,749 

932,214 

4,250,779 

12,013,495 

21,718,648 
2,409,521 
1,801,781 
1,263,764 
1,128,669 

1,278,819 
1,592,796 
2.375,029 
3,103,585 
2,823,487 

8,738,077 
36,536,125 
45,451,017 
33,048,000 
39,005,000 

48 
54 

54 
45 
50 
60 
50 

1,450 

65,975 

546,070 

669,013 

836,039 

4,393,658 
18,083,658 
17,955,572 
22,241,413 
28,136,189 

12,567,897 
12,332,696 
11,206,464 
9,534,467 
8,899,266 

9,526,474 
11,735,057 
15,009,478 
20,068,184 
24,942,701 

27,644,605 
32,413,287 
38.750,031 
79,366,000 
96,868,000 

1889 

1890 

1890 

1891 

30 
80 
10 
130 
37 

170 
625 

1891 

1892 

1892 

1893 

1893 

1894 

2,369 
3,455 

2,878 
3,650 
5,475 
5,560 
5,450 

5,400 
6,253 
8,960 
11,542 
8,454 

7,000 

9,339 

17,775 

■       20,056 

115,430 

186,695 
1,572,306 
2,406,522 
3,560.375 
4,245,525 

6,234,137 
8,978,680 
12,596,287 
13,172,000 
16,831,000  . 

1894 

1895 

1895 

1896 

1896 

1897 

1897 

1898 

1898 

1899 

6,472 

10,000 

37,100 

138,911 

1,366,748 

1900 

1901 

1901 

1903 
1904 
1905 

548,617 

917,771 

2,958,958 

8,910,416 

9,077,528 
5,000,221 
5,788,874 
3,059,531 
6,841,395 

10,720,420 
9,263,439 
12,498,828 
14.309,435 
18,191,539 

15,248,138 
11,392,201 
16,042,600 
17,188,000 
35,714,000 

1902 
1903 

1904 

181,084 

4,397,050 
24,281,973 
33,686,2.38 
30,898,339 
33,143,362 

31,317,038 
28,601,308 
23,893,899 
21,919,749 
19,041,695 

17,714,235 
15,776,860 
13,365,974 
11,960,000 
10,774,000 

1905 

1906 
1907 
1908 
1909 
1910 
1911 
1912 
1913 
1914 
1915 

1916 

1917 
1918 
1919 
1920 

1906 

43,524,128 
45,798,765 
47,859,218 
52,028,718 

56,069,637 
51,427,071 
63,579.384 
73,631,724 
97,915,243 

107,071,715 
107,507,471 
103,347,070 
86,911,000 
106,206,000 

1907 
1908 
1909 
1910 

X911 
1912 
1913 
1914 
1915 

1916 
1917 
1918 
1919 
1920 

311,050,710 

1,314,786,576 

36,258,188 

11,551,370 

108,022,584 

320,959,380 

220,503,298 

503,784,005 

1,044,437,457 

70,022,573 

203,671,911 

5,429,867,719 

I 


T^HE  PETROLEUM  INDUSTRY 


CHAPTER  III 

OIL  FIELDS  OF  THE  WORLD 

When  you  turn  from  the  oil  fields  of  the  United 
States,  which  are  today  in  a  high  state  of  develop- 
ment, to  the  rest  of  the  world  which,  except  for  a 
few;  countries,  is  almost  entirely  undeveloped,  you 
are  face-to-face  with  the  best  possible  reason  why 
the  United  States  should  try  to  retain  the  oil  lead- 
ership of  the  world  which  she  has  held  since  the 
birth  of  the  industry. 

The  products  of  petroleum  have  been  such  ab- 
solutely vital  factors  in  the  winning  of  our  indus- 
trial supremacy,  and  will  be  so  vital  in  retaining  it, 
that  the  whole  matter  of  our  early  acquisition  of  oil 
territory  in  foreign  lands  should  evolve,  and  will 
evolve,  from  one  of  individual  interest  on  the  part 
of  big  oil  producers  to  one  of  national  interest. 

Every  user  of  petroleum  products  is  directly 
interested  in  our  future  supply  of  petroleum  because 
it  is  only  reasonable  to  assume  that  should  the  con- 
trol of  the  world  supply  pass  from  us  to  a  foreign 

33 


THE  PETROLEUM  INDUSTRY 

nation  the  prices  to  which  we  have  been  accustomed 
will  not  be  reduced. 

By  turning  to  the  map  of  Mexico  you  will 
note  that  the  present  oil-producing  territoiry  of 
Mexico  stretches  from  Tampico  on  the  north  to 
Tuxpam  on  the  south  and  about  50  miles  into  the 
interior.  This  extremely  small  producing  area,  as 
compared  with  the  large  producing  area  in  the 
United  States,  is  the  first  of  several  striking  con- 
trasts between  Mexico  and  the  United  States  as  oil 
producmg  countries.  The  second  contrasts  found 
in  the  average  daily  production  per  well:  here  at 
home,  in  1920,  approximately  258,000  wells  pro- 
duced 443,000,000  barrels  of  oil  or  an  average  of  5 
barrels  per  well  per  day.  While  definite  figures  are 
diflTicult  to  obtain  it  is  probably  true  that  in  Mex- 
ico, in  1920,  approximately  200  wells  produced  163,- 
000,000  barrels  of  oil,  or  an  average  of  about  2,100 
barrels  per  well  per  day.  Mexico  is,  at  present  at 
least,  a  country  of  gushers.  The  a^ctual  proven  oil 
producing  area  of  the  United  States  is  about  9,000 
square  miles  while  that  of  Mexico  is  probably  only 
a  few  hundred  square  miles. 

The  geological  "structures"  in  which  the  oil 
sands  of  Mexico  are  found  are  entirely  different 

34 


THE  PETROLEUM  INDUSTRY 


•/  Texas  Co 


^,Ralo  BuancmO 


9.'^z/)/v  fhrp^jpo 


.'z* 


i  PtN-WtX 


Figure  15  —  Oil  fields  of  Mexico. 
35 


THE  PETROLEUM  INDUSTRY 

from  those  of  the  United  States.  The  Mexican  oil 
occurs  in  a  few  pools,  and  with  one  known  excep- 
tion all  pools  are  on  one  long  structure.  The  oil  ac- 
cumulates from  vast  areas  into  relatively  small 
producing  areas  or  pools,  often  in  cavernous  reser- 
voirs that  offer  little  "flow  resistance."  The  oil  is 
nearly  always  under  enormous  pressure,  which  in 
nearly  all  cases  is  water  pressure  as  contrasted  with 
gas  pressure  in  almost  all  of  the  fields  of  the  United 
States.  When  the  drill  taps  one  of  these  Mexican 
pools  a  gusher  results,  whereas  the  very  stability  of 
America's  oil  industry  lies  in  her  great  number  of 
wells  of  moderate  daily  production,  scattered  in 
widely  separated  fields. 

In  the  early  90's  Lord  Cowdray,  then  Sir  Weet- 
man  Pearson,  was  doing  some  engineering  work 
on  the  Tehuantepec  railway  in  southern  Mexico. 
Noticing  the  oil  seepages  he  made  some  investiga- 
tions, drilled  a  well,  found  oil  and  thereby  laid  the 
foundation  of  the  oil  industry  in  Mexico.  About 
1900  Edward  L.  Doheny,  who  had  been  a  big  factor 
in  the  development  of  the  oil  fields  in  southern  Cali- 
fornia, decided  to  begin  operations  in  old  Mexico.  It 
is  said  that  he  spent  $2,000,000  on  pipelines,  storage 
and  other  equipment  before  he  had  produced  a  bar- 

86 


THE  PETROLEUM  INDUSTRY 

rel  of  Mexican  oil.  His  foresight  was  vindicated 
however  when  his  Cerro  Azul  No.  4  came  in  for 
260,000  barrels  the  first  24  hours.  While  in  1918 
there  were  27  producing  companies  in  Mexico  these 
two  pioneers  were  still  easily  the  leaders.  Turn  to 
Table  4  and  note  how  Mexico's  production  has 
grown  in  20  years  as  compared  with  other  countries. 
Because  of  shortage  of  pipe  lines,  storage  tanks  and 
tank  steamers  most  of  Mexico's  big  wells  have  long 
been  throttled  down  to  a  fraction  of  their  possible 
daily  production.  In  fact  it  was  estimated  that,  in 
1920,  with  the  actual  production  at  about  163,000,- 
000  barrels  there  was  a  potential  annual  production 
far  in  excess  of  300,000,000  barrels. 

It  was  estimated,  in  1920,  that  of  the  total  oil 
investments  in  Mexico,  amounting  to  approximately 
$300,000,000,  about  97%  was  held  by  foreigners, 
while  in  the  United  States  about  4%  was  held  by 
foreigners.  Note  that  the  average  investment  per 
company  in  Mexico  is  about  $10,000,000.  In  1918 
there  were  27  producing  companies  in  Mexico  of 
which  17  were  owned  by  Americans,  5  were  Span- 
ish-Mexican, 3  Dutch  and  2  English.  Of  the  total 
production  in  1918,  American  interests  produced 
73%,  British  21%,,  Dutch  4'%  and  Spanish-Mexican 

37 


THE  PETROLEUM  INDUSTRY 

2% .    In  1919  the  shipments  from  Mexico  were  79% 
American  and  21%  British. 

January  1,  1921  there  were  over  1,430  miles  of 
pipe  line  In  Mexico  with  a  daily  capacity  of  over 
1,000,000  barrels.  At  the  beginning  of  1921  there 
were  900  storage  tanks  and  reservoirs  available 
with  a  combined  capacity  of  about  50,000,000  bar- 
rels of  crude  oil.  There  were  four  complete  re- 
fineries with  a  combined  daily  capacity  of  about 
67,500  barrels,  six  topping  plants  with  a  combined 
daily  capacity  of  over  130,000  barrels  with  three 
complete  refineries  and  one  topping  plant  under 
construction.  Tank  steamers  load  alongside  the 
dock  at  Tampico  but  at  Tuxpam  flexible  ocean- 
loading  pipelines  are  used  that  reach  more  than  a 
mile  from  shore. 

While  Mexico  is  essentially  a  country  of  big 
wells  it  is  also  a  country  requiring  big  investments 
which,  with  proper  management,  yield  big  returns. 

Any  sketch  of  Mexican  oil  fields  would  be  in- 
complete without  the  stories  of  a  few  of  her  great 
wells,  the  greatest  of  which  is  "Cerro  Azul  No.  4" 
(see  map,  page  35).  This  well  was  completed 
February  10,  1916  by  the  Pan  American  Petroleum 
and  Transport  Company,  the  parent  company  of  the 

38 


THE  PETROLEUM  INDUSTRY 

Doheny  interests.  The  first  24  hours  it  produced 
260,85^8  barrels  which  is  at  the  rate  of  three  barrels 
a  second.  During  its  first  two  years  it  produced 
approximately  60,000,000  barrels  of  oil  and  is  today 
averaging  25,000  barrels  a  day  with  its  powerful 
gate  valve  only  slightly  opened. 

The  Mexican  Petroleum  Company,  another  of 
the  Doheny  interests,  brought  in  "Casiano  No.  7" 
September  1910  with  an  indicated  flow  of  100,000 
barrels  a  day.  It  was  throttled  down  to  about  25,- 
000  barrels  a  day  which  it  gave  for  over  nine  years, 
until  November  1919,  when  it  turned  to  salt  water. 
The  producing  field  of  which  this  was  the  largest 
well  is  only  a  half  mile  wide  and  three  miles  long, 
yet  this  one  well  produced  not  less  than  85,000,00D 
barrels  of  oil. 

On  December  26,  1910  the  'Totrero  del  Llano" 
well,  owned  by  the  Lord  Cowdray  interests,  began 
spouting  oil  through  an  eight  inch  pipe  and  pro- 
duced over  100,000,000  barrels  before  it  turned  to 
salt  water  over  night  on  December  4,  1918.  The 
life  of  this  well  could  have  been  prolonged  for  years 
if  oil  leakages  had  not  developed  outside  the  casing 
on  account  of  the  enormous  pressure.  Until  these 
appeared  the  well  had  been   throttled  down,   but 

39 


THE  PETROLEUM  INDUSTRY 

when  they  developed  it  was  allowed  to  run  "wide 
open" — and  then  it  required  four  years  to  drain 
the  pool. 

Most  spectacular  of  all  Mexican  wells  was  "Dos 
Bocas,"  drilled  by  the  Lord  Cowdray  interests.  On 
July  4,  1908  oil  was  struck  at  1,820  feet  and  in 
twenty  minutes  the  well  was  absolutely  out  of  con- 
trol. The  pent-up  pressure  was  so  great  that  the 
derrick  was  blown  to  fragments,  the  four-inch  drill 
pipe  was  blown  out  of  the  well,  1,800  feet  of  heavy 
iron  casing  was  swallowed  up,  great  fissures  opened 
and  spread  until  they  broke  up  the  ground  under 
the  boiler.  Although  the  fire  had  been  drenched 
with  water  some  embers  remained — and  the  con- 
flagration started.  The  column  of  oil  now  over  a 
thousand  feet  high  was  instantly  ignited ;  the  roar 
of  the  flames  could  be  heard  for  miles;  the  heat 
was  so  terrific  that  approach  nearer  than  300  feet 
was  impossible. 

Soon  a  crater  1000  feet  across  was  blown  out 
and  it  is  estimated  that  1,000,000  cubic  yards  of 
earth  was  blown  into  the  air.  All  known  methods 
of  fire-fighting  were  tried  but  without  success  and 
finally  a  battery  of  powerful  pumps  was  set  up  on 
the  bank  of  a  river  2,000  feet  away  and  they  began 

40 


THE  PETROLEUM  INDUSTRY 

filling  the  crater  with  water,  but  before  much  prog- 
ress had  been  made  the  column  of  flame,  after  rag- 
ing for  58  days,  suddenly  abated  and  the  well  turned 
to  hot  salt  water.  Today  Dos  Bocas  occasionally 
spouts  gas  and  salt  water  but  it  is  from  the  midst  of 
a  great  briny  lake  for  which  it  is  the  subterranean 
supply.  As  Dos  Bocas  was  the  first  of  Mexico's 
giant  gushers  this  tragedy  was  not  without  its  com- 
pensation for  it  advertised  the  enormous  oil  re- 
sources of  Mexico  as  nothing  else  could  have  done. 
Oil  was  "officially"  discovered  in  South  Amer- 
ica in  1896  and  yet  that  vast  country  from  that 
date  until  January  1,  1921,  a  period  of  25  years, 
had  produced  less  than  half  as  much  oil  as  the  state 
of  Oklahoma  produced  in  the  year  1920.  Oil  seep- 
ages are  plentiful,  especially  in  the  north  half  of 
the  continent,  and  within  the  last  few  years  mil- 
lions of  dollars  have  been  spent  by  a  number  of  big 
producing  oil  companies  in  laying  the  foundation 
for  future  business.  This  money  has  gone  into 
exploration  work  on  a  vast  scale,  into  leases,  single 
companies  often  holding  millions  of  acres,  into 
rights  of  way,  road  building,  pipe  lines,  storage, 
refineries,  wharves,  tugs,  tankers,  offices,  quarters, 
machine  shops,  storehouses,  sanitation,  hospitals — 
a  big  program  worthy  of  a  big  industry. 

41 


THE  PETROLEUM  INDUSTRY 

Father  Acosta  is  credited  with  the  discovery  of 
oil  in  Peru  about  the  middle  of  the  17th  Century 
and  in  1692  the  Spanish  government  granted  a  con- 
cession for  the  collection  of  Peruvian  oil.  Most  of 
the  oil  comes  from  the  vicinity  of  Talare,  which 
produces  over  2,000,000  barrels  a  year.  A  large 
English  company  has  been  established  for  years  on 
the  north  coast  and  has  other  properties  in  the 
Punta  Restin  fields.  The  oil  isi  equal  to  the  best 
produced  in  the  United  States. 

The  slow  development  of  Colombia  is  due  to 
the  government's  opposition  to  thei  exploitation  of 
her  resources  by  foreign  capital.  The  Tropical  Oil 
Company  however  has  done  extensive  work  there, 
some  wells  being  reported  as  good  for  several  thou- 
sand barrels  a  day.  There  are  several  producing 
sands  lying  at  from  1,500  to  2,100  feet.  Finding 
it  too  expensive  to  ship  in  timber  for  derricks  they 
built  them  throughout  from  the  most  common  wood 
at  hand — solid  mahogany.  The  company  is  now  de- 
veloping a  property  near  the  Magdalena  River,  400 
miles  from  tide-water,  through  heavy  tropical  jun- 
gles and  the  pipe  lines  to  the  Caribbean  coast,  with 
pumping  stations,  tank  storage  and  loading  facili- 
ties will  cost  probably  $15,000,000. 

42 


THE  PETROLEUM  INDUSTRY 


;;:         a> 


43 


THE  PETROLEUM  INDUSTRY 

The  first  test  well  in  Venezuela  was  drilled 
June,  1914.  Development  if  judged  by  production, 
has  been  slow — but  the  territory  is  being  ''proven" 
rather  than  developed.  Instead  of  the  "wildcatting" 
with  which  the  States  is  familiar  every  possible  pre- 
caution known  to  practical  operating,  to  geology 
and  to  engineering  is  used  in  all  the  South  American 
countries.  The  Royal  Dutch-Shell  Company, 
through  a  subsidiary,  built  a  strictly  modern  re- 
finery, with  a  capacity  of  10,000  barrels  a  day,  on 
the  Island  of  Curacao.  The  largest  producing  fields 
are  in  or  near  the  Lake  Maracaibo  basin. 

The  Argentine  began  producing  in  a  small  way 
in  1909  and  its  largest  field,  the  Comodoro,  today 
yields  about  1,000,000  barrels  a  year.  This  is  trans- 
ported by  pipe  line  to  tide  water  and  thence  by 
tanker  to  Buenos  Aires.  Indications  are  not  favor- 
able for  large  oil  resources  in  the  Argentine. 

Some  oil  has  Been  found  in  the  Dominican  Re- 
public (part  of  the  Island  of  Haiti),  but  in  limited 
quantities.  The  remainder  of  the  West  Indies  is 
not  considered  favorable  for  oil  production. 

The  Island  of  Trinidad  produced  over  1,500,000 
barrels  of  oil  in  1920 — ibut  its  asphalt  deposits,  the 
largest  in  the  world,  are  far  more  valuable.     Over 

44 


THE  PETROLEUM  INDUSTRY 

85  %  of  tRe  asphalt  used  in  the  United  States  comes 
from  "Pitch  Lake"  which  covers  114  acres.  This 
lake  produces  over  140,000  tons  of  asphalt  a  year 
which  is  partially  replaced  by  a  flow  estimated  at 
20,000  barrels  a  year  from  subterranean  passages. 
The  quality  varies  from  liquid  asphalt  to  hard  pitch. 
The  property  is  operated  by  an  American  company 
under  a  British  concession  which  expires  in  1930. 

Some  development  work  is  going  on  in  Panama, 
the  exploration  work  indicating  conditions  favora- 
ble to  substantial  production,  although  up  to  the 
present  little  oil  has  been  actually  obtained. 

Canada's  production  of  oil  was  less  than  a 
quarter-million  barrels  in  1920,  most  of  it  coming 
from  the  province  of  Ontario.  Discoveries  of  oil 
were  made  in  northwest  Canada  near  Fort  Norman 
on  the  Mackenzie  River  some  months  ago  but  the 
extent  and  value  of  the  field  has  not  yet  been  proven. 

Russia  is  larger  than  the  United  States — but 
the  story  of  oil  in  Russia  is  almost  entirely  the  story 
of  the  Baku  fields  on  the  west  shore  of  the  Caspian 
Sea — and  the  Baku  fields  cover  less  than  ten  square 
miles.  Table  4  shows  that  Russia  led  the  world  in 
the  production  of  oil  in  1898,  1899,  1900  and  1901 
with  a  production  averaging  72,000,000  barrels  a 
year. 

45 


THE  PETROLEUM  INDUSTRY 

The  real  pioneers  of  Russian  oil  were  the  two 
brothers,  Rudolph  and  Ludwig  Nobel  who  were  the 
first  to  introduce  deep  drilling  at  Baku,  They  too 
were  the  first  Europeans  to  use  the  pipe  line  for 
transporting  oil  and  were  the  leading  figures  in  the 
development  of  the  oil  industry  in  Russia.  The  de- 
velopment of  the  tank  steamer  is  undoubtedly  trace- 
able to  their  efforts  during  the  early  years  of  the 
Baku  oil  fields  when  the  enormous  production,  the 
low  price  of  petroleum  and  the  high  transportation 
charges  demanded  a  new  means  of  cheap  transpor- 
tation to  new  markets. 

Prior  to  1869  Russia's  oil  wells  were  dug  by 
hand  but  that  year  modern  drilling  equipmment  and 
methods  were  introduced  by  the  Nobel  brothers. 
The  product  was  shipped  up  the  Volga  River  to  in- 
terior Russia  until  the  completion  of  the  railway 
from  Baku  on  the  Caspian  Sea  to  Batoum  on  the 
Black  Sea  thereby  opening  up  the  world's  markets. 
In  1905  an  8  inch  pipe  line  560  miles  long  was  built 
from  sea  to  sea  alongside  this  railroad  thereby 
greatly  reducing  the  oil  transportation  charges.  In 
October  1893  an  Englishman  drilled  the  first  large 
well  in  the  great  Grozny  field  but  was  ruined  by 
the  claims  of  the  peasants  whose  houses  and  lands 

46 


THE  PETROLEUM  INDUSTRY 


47 


THE  PETROLEUM  INDUSTRY 

were  damaged  by  the  flood  of  oil  which  could  not 
be  controlled  for  years.  The  property  on  which  this 
well  was  drilled  has  yielded  over  300,000  barrels 
of  oil  to  the  acre. 

The  Baku  oil  sands  are  plentifully  distributed 
through  depths  of  many  hundreds  of  feet  and  there- 
fore under  a  single  small  area  there  may  be  a  dozen 
separate,  rich  producing  oil  sands  with  a  total  thick- 
ness of  hundreds  of  feet.  At  Bibi  Eibat  which  is 
almost  a  suburb  of  Baku  a  selected  spot  has  yielded 
nearly  2,500,000  barrels  to  the  acre,  and  the  whole 
operated  area  of  250  acres  has  produced  over  1,- 
500,000  barrels  to  the  acre.  The  great  Balakhany- 
Saboontchy  field  near  Baku,  covering  about  2,600 
acres,  has  produced  500,000  barrels  to  the  acre. 

The  Binagadi  field  was  opened  in  1901  with  a 
10,000  barrel  well.  The  Surakhani  field  was  dis- 
covered in  1908  by  drilling  to  a  deeper  sand,  the 
upper  sands  yielding  light  oil  and  gas.  Since  1911 
the  island  of  Cheleken,  off  the  east  coast  of  the  Cas- 
pian Sea,  has  been  very  productive,  the  wells  yield- 
ing quantities  of  paraffin. 

About  1910  the  Emba  field,  north  of  the  Cas- 
pian Sea,  was  developed  and  has  become  very  pro- 
ductive.    Large  flowing  wells  were  struck  around 

48 


Figure  18  —  The  Mexican  gusher,  Cerro  Azul,  being  brought 
under  control. 


Figure     19— Spouting    well     in    action    at    Surakhani,     near 
Baku,  Russia. 


United 
States. 


Table  4  —  World's  production  of  crude  petroleum,  1857-1920,  in  batrels  of  42  gallons. 

Italy  Canada.  Russia  Galacia.         Japan  and         Germany.  India  Dutch  East  Peru  Mexico.  Argen-         Trinidad.         Egypt.  Other  Total.  Year 

Formosa.  Indies.  tina.  countries. 


1857  1,977  1.977  1857 

1858  3,560  3,560  1858 

1859  4,349  2,000  6,349  1859 

1860  8,542  500,000  36  508.578  1860 

1861  17,279  2,113,609  29  2,130,917  1861 

1862  23,198  3,056,690  29  11,775  3,091,692  1862 

1863  27,943  2,611,309  5S  82,814  40,816   2,762,940  1863 

1864  33,013  2,116,109  72  90,000  64,586   2,303,780  1864 

1865  39,017  2,497,700  2,265  110,000  66,542   2,715,524  1865 

1866  42,534  3,597,700  992  175,000  83,052   3,899,278  1866 

1867  50,838  3,347,300  791  190,000  119,917   3,708,846  1867 

1868  55,369  3,646,117  367  200,000  88,327   3,990,180  1868 

1869  58,533  4,215,000  144  220,000  202,308   4,695,985  1869 

1870  83,765  5,260,745  86  250,000  204,618   5,799,214  1870 

1871  90,030  5,205,234  273  269,397  165,129   5,730,063  1871 

1872  91,251  6,293,194  331  308,100  184,391   6,877,267  1872 

1873  104,036  9,893,786  467  365,052  474,379   10,837,720  1873 

1874  103,177  10,926,945  604  168,807  583,751      149,837   ; 11,933,121  1874 

1875  108,569  8,787,514  813  220,000  697,364      158,522      4.566   9,977,348  1875 

1876  111,314  9,132,669  2,891  312,000  1,320,528      164,157      7,708   11,051,267  1876 

1877  108,569  13,350,363  2,934  312,000  1,800,720      169,792      9,560   15,753,938  1877 

1878  109,300  15,396,868  4,329  312,000  2,400,960      175,420      17,884   18,416,761  1878 

1879  110,007  19,914,146  2,891  575,000  2,761,104      214,800      23,457   23,601,405  1879 

1880  114,321  26,286,123  2,035  350,000  3,001,200      229,120      25,497       9,310   30,017,606  1880 

1881  121,511  27,661,238  1,237  275,000  3,601,441      286,400      16,751      29,219   31,992,797  1881 

1882  136,610  30,349,897  1,316  275,000  4,537,815      330,076      15,549      58,025   , 35,704,288  1882 

1883  139,486  23,449,633  1,618  250,000  6,002,401      365,160      20,473      26,708   30,255,479  1883 

1884  210,667  24,218,438  2,855  250,000  10,804,577      408,120      27,923      46,161   35,968,741  1884 

1885  193,411  21,858,785  1,941  250,000  13,924,596     465,400     29,237     41,360   86,764,730  1885 

1886  168,606  28,064,841  1,575  584,061  18,006,407      305,884      37,916      73,864   47,243,154  1886 

1887  181,907  28,283,483  1,496  525,655  18,367,781      343,832      28,645      74,284   47,807,083  1887 

1888  218,576  27,612,025  1,251  695,203  23,048,787      466,537      37,436      84,782 52,164,597  1888 

1889  297,666  35,163,513  1,273  704,690  24,609,407      515,268      52,811      68,217      94,250   61,507,095  1889 

1890  383,227  45,823,572  2,998  795,030  28,691,218     659,012     51,420     108,296     118,065   76,632,838  1890 

1891  488,201  54,292,655  8,305  755,298  34,573,181      630,730      52,917     108,929      190,131   ■ 91,100,347  1891 

1892  593,175  50,514,657  18,231  779,753  35,774,504      646,220      68,901     101,404      242,284   88,739,219  1892 

1893  535,655  48,431,066  19,069  798,406  40,456,519      692,669     106,384      99,390      298,969      600,000   92,038,127  1893 

1894  507,255  49,344,516  20,552  829,104  36,375,428      949,146     171,744     122,564      .327,218      688,170   89,335,697  1894 

1890  575,200  52,892,276  25,843  726,138  46,140,174    1,452,999     141,310     121,277      371,536     1,215,757   103,662,510 


l«a?  IfAf.  '^^.^3i^\  ^^'"^  ^-*5'^22  47,220,033  2,443.080  197,082  145,061  429,979  1,427,132  JT.53o  1M.159,1.S:! 

\fl  7?«'o^«  ^Al^'ll'i  1^??^  Ifo'T.  54,399,568  2,226.368  218,559  165,745  545.704  2,551,649  70.831  121,948,575 

1898  776,238  55,364,233  14,489  758,391  61,609,357  2,376,108  265,389  183,427  542  110  2  964  035  70  905  124  9^4  68-' 

Qn«  Y^^V'  ",070,850  16,121  808,570  65,954,968  2;3i3;o47  536;o79  192:232  945:97?  1.795:961  89,166  ::::::::::   :::::;::   :;:::::::    ::::::::    ::::::::  ilu33:?4i 


1895 

1896 
1897 
1898 

1900  1,628,535  63,620,529  12,102  913,498  75,779,417  2,346,505  866,814  358,297  1,078,264  2.253,355  274.800       149.132,116  1900 

}902  limit  88  7rfi'i?r  \t'l^t  Hl'Ti  1^.^/^'°^  3,251,544  1,110,790  313.630  1.430,716  4.013,710  274,800                10,345       20.000  167.434.434  1901 

903  2?e3m  walni\7  i?s7A  IfAii  ??'^o?'SH  i'\f-^^^  1'193,038  353,674  1,617,363  2,430,465  286,725                40,200       26,000  182,006,076  1902 

904  sltlo^R  mnsn'qfin  llUt  -o'r?-  llit}:f-^.  ^-'^Ml^  1.209,371  445,818  2,510,259  5,770,056  278,092               75,375       36,000  194  879  669  1903 

905  i^l'tll  l-«???'^sn  llfo-  lf,fa%  l^Ai^.'t%  5,947,383  1,419,473  637,431  3,385,468  6,508,485  345,834              125,625       40.000  218.204,391  1904 

l»05  4,420,987  134,71  ,,.-,80  44,02/  634,095  54,960,270  5,765,317  1,472,804  560,963  4,137,098  7,849,896  447,880             251,250       ;....              30,000  215,292:107  1905 

1907  8  US  207  Kt'^^^  ^q's?-  ^tt'l^l  IH^PrW  5,467,967  1.710,768  578,610  4,015,803  8,180,657  536,294  502,500       30,000  213,415,360  1906 

908  8  252157  iTs^^f^^i  ^n'qr«  -fAl^  ll'^t^A^J  8,455,841  2,001,838  765,631  4.344,162  9.982,597  756,226  1,005  000                 101       30,000  264,245,419  1907 

909  9  32?  278  183'l70  874  49^88  4P07I?  IH^^Ail  J!'^^!'?^^  2,070,145  1.009.278  5,047,038  10,283.357  1,011,180  3.932,900            11,472                  169       30,000  285,552,746  1908 

1910  9  723  806  io9  557ol8  50  MO  i^^lll  ^n'^Ir'?,?  JH^F^^  1,889,563  1,018,837  6,676,517  11,041,852  1.316,118  2,713,500            18  431             57,14;;       20,000  298,616,403  1909 

»,r^,j,»Ub         .09,557,-48  o0,830  315,89o  r0,336,o74         12,673.688         1,930,661         1,032,522  6,137,990         11,030,620        1.330,105  .3,634,080  20,753  142,857       20,000  327,937:629       1910 

1912  l2:9?6:232  12:935:041  It]^  l%ilt  ll'lflHl  ^lil^-'f,^,  \-f^Af-  ]''n^An  ?'f?F«^  12'1^2,949  1,368,274  12,552.798  13,119  285.307  9,150  20,000  344.174,355  1911 

1913  13.554,768  248446,230  47198  228080  fioswl^r  7'a?^'}!^  }i]lit  H^h^l'^  7,116,672  10,845,624  1,751,143  16,558,215  47,007  436,805  205,905  20,000  352,446,598  1912 

1914  12,826,579  265  762,535  .39849  il4805  r.709ol99  I'n«H?2  hlfA'il  ^2^'^^*  7,930,149  11,172,294  2.133.201  25,696,291  130,618  503,616  94.635  20,000  383,547.399  1913 

1915  12.029.913  281,104104  43898  215464  fis^ianfio  !'?flln?  !','?f'?J?  ^^^'^^^  7,409,792  11,834,802  1,917,802  26,235,403  275,500  643,533  777,038  20,000  403,745,652  1914 

1916  8  945  029         300  767  158  68.o48,062  4,158,899        3,118,464  995,764  8,202,674         12,386,800        2,487,251         32,910,508         516,120  750,000         262;208  10,000  427,740,129       1915 

1917  3:720:760         SSS.Sls'.OOl  40763  i^l'sP  mitl'lm  li^AI^^        o'lll'll^.  ^^^'''^'^  8,491,137         13,174,399        2,550,645        39,817,402         796,920  928,581  411,000  25.000  459.411.737       1916 
918          8.730,235         355,927.716            35953           504741          4045fi'?8?          t'?a?'«9n        I'^^l'fla            S^M^)!           8.078.843         12.928.955        2.533,417        55,292,770       1,144,737        1,602,312       1,008,750         7,002.973  508.687,302       1917 

1919  6,517.748         377.719000  382.54  OOQIOO  ZilAm  «i?-'nnn        l'ttn'2^^  ^^^'^^^  8,000,000         13,284,936        2,536,102        63,828,327       1,321315        2,082,068       2,079,750        7,390,080  514,729,354       1918 

1920  7.406,318         443,402,000  38,000  ^oqooO  ^Onoonnn  rnnn'nn«         o'ifS'nS'^  P'*""'  8,453,800         15,780,000        2,561,000        87,072,954       1504.300        2,780,000       1,662,184        6,611,208  554,505.048       1919 


. JU.UUO.UUO  6.000.000         ^.^13.083  215.340  8,500,000         16,000,000        2,790.000       163,000,000       1,366,926        1.628.637       1.089,213         7,804,734  688,474,251 

0  165,332,477      5.429,692,719      1,049,925      24,865,870      1,938,283.199       166,306,273       42.831,830      ^^iJ^Wl       V^J^^B       ^^^J,^,      ^^^^^^^      ^^^^^^      ^^^-JT,      Ti:iJi:^      ^TT^^       oJ7^,       8,754.383,216 


1920 


^ 


THE  PETROLEUM  INDUSTRY 

Dossor  and  before  the  war  extensive  arrangements 
were  made  for  development.  Russia  has  thousands 
of  square  miles  of  the  most  promising  oil  producing 
areas  in  the  world  and  witli  a  stableized  govern- 
ment these  oil  resources  will  be  quickly  developed. 

The  story  of  oil  in  the  Dutch  East  Indies  can  be 
written  around  one  man — H.  W.  A.  Deterding.  In 
the  20  years  that  he  has  been  the  directing  head 
of  the  Royal  Dutch  Company  he  has  developed  it 
from  a  small  producer  to  practical  dominance  of  the 
~>il  business  in  the  Eastern  Hemisphere,  a  com- 
manding position  in  Mexico  and  large  holdings  in 
the  United  States.  In  1902  the  Royal  Dutch  Com- 
pany became  affiliate'd  with  the  Shell  Transport  and 
Trading  Company  of  London  and  the  Rothschild 
petroleum  interests  of  Paris,  all  of  which  are  now 
referred  to  as  the  Royal  Dutch-Shell  Company. 

The  oil  production  of  the  British  Empire  is  rep- 
resented by  Canada  with  220,000  barrels,  India  with 
over  8,500,000  barrels,  Egypt  with  1,000,000  bar- 
rels and  the  Royal  Dutch-Shell  Company  in  which 
Holland,  England  and  France  are  interested.  The 
total  production  of  the  British  Empire  is  probably 
about  4%  of  the  world's  production,  but  this  will 
undoubtedly  be  rapidly  increased  as  the  world  war 

49 


THE  PETROLEUM  INDUSTRY 

gave  Britain  a  new  vision  of  the  vital  importance  of 
petroleum,  not  only  for  her  navy  but  also  for  her 
merchant  marine  and  her  industries. 

The  oil  industry  really  started  in  the  Kingdom 
of  Roumania  in  1857  and  this  little  country  had 
produced  up  to  the  beginning  of  1921  about  165,- 
000,000  barrels. 

Galacia,  formerly  known  as  Austrian  Poland, 
has  been  producing  nearly  fifty  years,  her  total  pro- 
duction to  date  being  about  equal  to  Roumania's. 

Japan's  production  of  2,000,000  barrels  in  1920 
puts  her  in  the  position  of  either  becoming  a  pro- 
ducer in  foreign  lands  or  a  large  purchaser  not  only 
for  her  industries  but  more  especially  for  her  rapid- 
ly growing  navy  which  must  be  or  become  oil-burn- 
ing to  rank  with  other  nations. 

Germany  has  been  a  small  producer  and  a  large 
importer  of  petroleum  and  its  products,  her  produc- 
tion scracely  passing  the  million  barrel  mark  before 
the  world  war, 

Persia  and  Mesopotamia  are  the  latest  and  po- 
tentially among  the  most  promising  nations  to  enter 
the  field  of  oil  producers.  In  fact  the  entire  terri- 
tory of  southwestern  Asia,  because  of  its  potential 
oil  resources,  is  today  the  subject  of  international 

50 


THE  PETROLEUM  INDUSTRY 

diplomatic  controversies,  the  results  of  which  can- 
not be  anticipated, 

Italy  with  a  production  of  38,000  barrels  in 
1920  can  scarcely  be  classed  as  an  oil  producing 
country.  In  Table  4  the  item,  "Other  Countries," 
represents  the  combined  production  of  Venezuela, 
Colombia,  British  Borneo,  Cuba  and  other  small 
producing  nations.  British  Borneo  was  developed 
about  the  time  the  Royal  Dutch  Company  began 
operations  in  the  East  Indies. 

Consulting  Table  4  it  is  interesting  to  note  that 
of  the  world's  production  from  1857  to  the  year 
1920  (8,754,000,000  barrels)  the  United  States 
produced  5,429,000,000  barrels,  or  62%. 

Of  the  world's  production  for  the  year  1920 
(688,000,000  barrels)  the  United  States  produced 
443,000,000  barrels,  or  over  64%. 

In  the  year  1920,  the  combined  production  of 
the  United  States  and  Mexico  (606,000,000  barrels) 
was  over  87%  of  the  world's  production,  thus  leav- 
ing all  of  the  remaining  nations  of  the  world  to  pro- 
duce less  than  13%. 


51 


CHAPTER  IV 
PRODUCTION 

When  most  of  us  think  of  the  oil  business  we 
imagine  a  derrick  with  oil  spouting  from  the  top — 
and  when  we  stop  our  car  at  a  filling  station  for 
gasoline  and  oil,  we,  in  a  sort  of  vague  way,  associate 
the  gasoline  and  the  oil  with  the  derrick,  giving  lit- 
tle thought  to  the  gigantic  industry  that  lies  between 
the  derrick  and  the  filling  station. 

But  on,  today,  is  as  vital  to  civilization  as  Iron 
and  Coal. 

The  petroleum  industry  is  a  chain,  with  four 
links : 

1 — Production 
2 — Transportation 
3 — Refining 
4 — iMarketing 
Production  has  to  do  with  all  of  the  different 
processes  and  equipment  by  which  crude  oil  is  ob- 
tained from  the  oil-bearing  sands  far  beneath  the 
surface  of  the  earth. 

52 


THE  PETROLEUM  INDUSTRY 

Transportation  takes  the  crude  oil  when  it 
reaches  the  surface  and  transports  it  to  the  refinery. 

The  refinery  "distills"  the  crude  oil  into  ben- 
zine, gasoline,  kerosene,  gas  oil,  lubricating  oils, 
fuel  oil,  paraffin,  petroleum  coke — in  fact  about  300 
distinct  products  are  today  obtained  from  crude  oil. 

Marketing  takes  the  gasoline,  kerosene,  lubri- 
cating oils  and  other  products  from  the  refinery,  and 
distributes  them  by  tank  cars,  tank  steamers,  tank 
wagons,  filling  stations  and  retail  stores  to  millions 
of  customers  in  every  country  on  the  globe. 

Without  entering  into  a  discussion  of  how  or 
when  petroleum  was  formed  we  will  start  with  the 
fact  that  it  actually  exists  in  the  crust  of  the  earth, 
and  describe  the  present  methods  of  locating  it  and 
bringing  it  to  the  surface. 

If  the  territory  is  already  producing,  the  loca- 
tion of  a  site  for  a  new  well  is  a  comparatively  sim- 
ple matter,  with  the  chances  very  largely  in  favor 
of  success,  because  the  history  of  the  wells  already 
drilled  in  the  field  is  available.  But  in  undeveloped 
territory,  known  to  the  oil  man  as  "wildcat"  terri- 
tory, the  location  of  drilling  sites  usually  does  and 
always  should  start  with  "exploration"  work  which 
may  take  the  exploring  party  to  another  part  of  the 

53 


THE  PETROLEUM  INDUSTRY 

state  or  a  distant  state  or  possibly  some  field  half- 
way round  the  world. 

With  the  big  producing  companies  the  "Ex- 
ploration Department"  consists  of  an  office  staff  and 
a  field  staff.  The  office  staff  is  largely  statistical 
and  clerical  while  the  field  staff  is  made  up  of  petro- 
leum geologists  and  experienced  oil  field  men.  Ev- 
ery man  is  trained  and  alert  to  discover  every  evi- 
dence, by  every  known  means,  of  the  presence  of  oil 
or  gas  beneath  the  surface,  whether  that  evidence 
be  actual  oil  or  gas  seepages,  oil  on  the  surface  of 
streams  or  in  wells,  mud  volcanoes,  outcropping 
rocks  or  general  surface  contour. 

Of  the  23,133  wells  drilled  in  the  United  States 
in  1917,  Table  5  shows  that  16,365  (or  about  71%) 
came  in  oil,  1,966  (or  about  8%  )  came  in  gas  while 
4,802  (or  about  21%)  were  "dry  holes."  By  far  the 
greater  part  of  these  4,802  dry  holes  were  drilled 
by  "wildcatters"  in  territory  frequently  far  removed 
from  actual  production.  The  wildcatting  done  by 
the  large  producing  companies  is  on  an  entirely  dif- 
ferent basis  from  that  done  by  the  small  operator, 
as  the  large  company  has  the  advantage  of  the  serv- 
ices of  high-grade  technical  men  to  direct  their  ex- 
ploration  and   wildcatting  work   and   as   a   result 

54 


THE  PETROLEUM  INDUSTRY 

their  percentage  of  dry  holes  is  comparatively  small. 

Table  5  —  Wells  completed  in  the  United  States 
in  1917. 

% 
Field  Oil       Gas     Dry      Total   Dry 

Appalachian    4,907  1,219  1,544  7,670  20 

Lima-Indiana    ...  647  18      135  800  17 

Illinois    488  9      149  646  23 

Kansas    2,712  177      538  3,427  16 

Oldahoma     5,027  410  1,360  6,797  20 

Texas,  northern 

and   central 728  23      290  1,041  28 

Louisiana, 

northern     302  56        99  457  22 

Gulf  Coast 864  54      600  1,518  39 

California    686  48  734  7 

Remainder   4 39  43  91 

Totals     16,365  1,966  4,802  23,133 

Average  dry  holes  for  the  United  States  in 
1917—21%. 

T'day  the  average  oil  well  is  drilled  much  deep- 
er than  a  few  years  ago,  labor  costs  are  much  high- 
er, oil  v/ell  m.achinery  and  supplies  are  much  higher 
— all  resulting  in  a  much  higher  cost  per  well.  Dry 
holes  are  too  costly  to  justify  "rule-of-thumb"  meth- 
ods, and  60  years  of  "hindsight"  is  being  turned  to 
profit  through  "foresight"  in  every  department  of 
the  industry. 

55 


THE  PETROLEUM  INDUSTRY 

Table    6  —  Producing    oil    wells    in    the    United 
States  October  31,  1920. 

Pennsylvania    : 67,700 

Oklahoma    50,700 

Ohio    39,600 

West  Virginia. 19,500 

Illinois    16,800 

Kansas  15,700 

.  New  York    14,040 

Texas    - 11,100 

California 9,490 

Kentucky    7,800 

Louisiana    2,700 

Indiana    2,400 

Wyoming  and  Montana 1,000 

Colorado    70 

Total.... 258,600 

There  are  in  use  today  in  the  United  States 
two  principal  types  of  drilling  outfits: 
1 — Standard  cable-tool  system 
2 — Rotary-hydraulic  system 
These  types  have  been  developed  to  meet  the 
different   earth    and    rock    conditions   in    different 
parts  of  the  country.    The  oil  industry  inherited  its 

56 


Figure  20  —  Rotary  drilling  rig. 


-a 

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3 
O 

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^ 

CO 

1 

C 

to 

C 

a; 

C8 

W 

3 

b* 

Figure  22  —  String  of 
tools  for  standard  cable 
tool  system. 

1  —  Walking  beam. 

2  —  Temper    screw,    about 

5  feet  long. 

3  —  Rope      clamp.        The 

upper  end  of  the  rope 
leads  to  the  bull  wheel 
on  which  the  necessary 
length  of  rope  is 
spooled. 

4  —  Casinghead,  or  top  of 

well  casing. 

5  —  Derrick   floor. 

6  —  Timbers       supporting 

derrick  floor. 

7  —  Rope      leading      into 

well  and  carrying  the 
weight  of  tools,  some- 
times several  tons. 

8  —  Rope      socket,      from 

2Vi2  to  4  feet  long, 

9  —  Jars,  about  5  feet 
long. 

10  —  Stem,  from  6  to  48 
feet  long. 

11  — Dr-lling  bit,  from 
^V2  to  6  feet  long,  and 
from  21/2  to  28  inches 
across;  weighs  up  to  3 
tons,  or  more.  The 
spudding  bit  is  usually 
.'}  feet  long  and  from 
8  to  16  inches  across; 
weighs  about  500 
pounds.  Note  taper 
screws  for  connecting 
8,  9,  10  and  11. 


THE  PETROLEUM  INDUSTRY 

first  drilling  equipment  from  the  brine-well  drilling 
business.  Col.  Drake's  outfit,  with  60  years'  im- 
provements, is  known  today  as  the  standard  cable- 
tool  system.  It  is  adapted  to  deep  drilling  where 
several  strings  of  casing  must  be  handleB  and  much 
rock  penetrated. 

The  rotary-hydraulic  system  is  largely  used 
in  the  gulf  coast  fields  where  little  roc"k  lies  above 
the  oil  bearing  sands.  The  act  of  drilling  with  a 
rotary  outfit  is  very  similar  to  that  of  a  machinist 
drilling  a  hole  through  a  casting.  The  drill  stem  is 
hollow  and  a  mixture  of  mud  and  water  is  forced 
through  it  under  pressure  of  40  to  100  pounds  to 
the  square  inch.  This  fluid  escapes  through  the  drill 
bit  at  the  bottom  of  the  well,  softening  the  forma- 
tion and  carrying  the  "drillings"  up  the  outside  of 
the  drill  stem  to  the  surface.  Powerful  pumps  keep 
this  fluid  in  constant  circulation. 

The  drill  bit  and  drill  stem  are  solidly  attached 
to  a  rotator  at  the  top  of  the  well  and  under  average 
conditions  to  which  this  system  is  adapted  the  day's 
drilling  ranges  from  25  to  200  feet. 

If  drilling  with  the  standard  cable-tool  system 
is  to  be  done  in  shallow  fields,  that  is  up  to  1500  feet 
deep,  and  the  bore  hole  does  not  require  much  cas- 

57 


THE  PETROLEUM  INDUSTRY 

ing  until  the  well  is  completed,  the  portable  rig, 
shown  in  Figure  21,  gives  equal  results'  at  a  frac- 
tion of  the  cost  of  the  standard  rig.  The  portable 
rig  uses  only  the  cable-tool  system  whereas  deep 
drilling  by  the  cable-tool  system  and  all  drilling  by 
the  rotary  system  requires  the  standard  type  der- 
rick. 

These  derricks,  usually  of  wood,  although  steel 
derricks  are  coming  into  use,  are  20  feet  square  at 
the  base,  4  feet  square  at  the  top  and  from  40  to  80 
and  occasionally  120  feet  high  depending  on  the 
depth  well  to  be  drilled. 

The  "string  of  tools"  used  in  the  standard  sys- 
tem is  from  30  to  50  feet  long  and  consists  of  rope 
socket,  jars,  stem  and  bit.  The  rope  socket  is  at 
the  top  end  of  the  string  and  the  rope  is  attached  to 
it.  Next  come  the  "jars"  that  permit  a  "slack"  in 
the  tension  of  the  cable  at  the  end  cf  the  down  stroke 
of  the  drill  and  make  it  possible  to  loosen  the  bit 
with  a  jerk,  instead  of  a  pull,  if  it  sticks  in  the  bore 
hole.  Next  comes  the  stem,  long  and  heavy,  to  give 
weight  to  the  string  and  to  keep  the  bore  hole 
straight.  Last  comes  the  drill  bit  varying  in  size 
from  a  few  inches  to  28  inches  across.  The  deeper 
the  well  to  be  drilled  the  larger  the  bit  that  must  be 

58 


THE  PETROLEUM  INDUSTRY 


Figure  24  —  From  surface  to  oil  sand.  Note  that  first  string 
of  casing  rests  on  gray  shale  and  second  string  rests  on 
cap  rock. 


59 


THE  PETROLEUM  INDUSTRY 

used  when  "spudding  in,"  that  is,  drilling  the  first 
50  to  100  feet.  The  rope  socket,  jars,  stem  and  bit 
are  screwed  together  with  taper  threads. 

The  string  of  tools  weighs  from  one  to  four 
tons  and  is  attached  to  the  end  of  a  heavy  manila 
rope  or  wire  cable  that  passes  over  the  crown  pulley 
at  the  top  of  the  derrick  to  the  bull  wheel  on  the 
derrick  floor.  Enough  cable  is  spooled  on  this  bull 
wheel  to  drill  as  deep  as  the  well  is  to  go,  whether 
hundreds  or  thousands  of  feet.  By  releasing  the 
brake  on  the  bull  wheel,  the  cable  unwinds  as  the 
weight  of  the  tools  takes  them  to  the  bottom  of  the 
hole.  The  churning  motion,  by  which  the  string  of 
tools  is  raised  and  dropped  against  the  bottom,  is 
imparted  by  the  walking  beam  to  which  the  rope 
just  above  the  top  of  the  well  is  attached  by  means 
of  a  temper  screw.  One  end  of  this  screw  has  a 
rope  clamp  while  the  other  is  attached  to  the  walk- 
ing beam.  This  screw  is  about  5  feet  long  and  every 
time  the  drill  strikes  bottom  and  the  tension  on  the 
rope  slackens  the  driller  gives  the  handle  of  the 
screw  a  half  turn  thereby  letting  the  bit  strike  a 
little  deeper  the  next  time.  When  the  end  of  the 
screw  is  reached  the  string  of  tools  is  raised  from 
the  well,  the  bailer  is  let  down  to  remove  the  pul- 

60 


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THE  PETROLEUM  INDUSTRY 

verized  earth  and  rock  after  which  the  string  of 
tools  is  returned,  the  temper  screw  at  the  end  of 
the  walking  beam  is  clamped  to  the  rope  5  feet  high- 
er up  than  before,  and  the  whole  process  of  drilling 
and  bailing  is  repeated  until  the  well  is  completed  as 
an  oil  or  gas  well  or  abandoned  as  a  "dry  hole." 

When  a  well  is  started  the  drilling  usually  goes 
on  day  and  night  until  the  well  is  completed.  The 
12-hour  shifts  are  called  "tours"  and  a  crew  usu- 
ally consists  of  eight  men,  four  on  each  tour:  a 
driller,  a  tool  dresser,  a  helper  and  an  engineer. 
The  marvelous  delicacy  of  touch  by  which  the  blind 
read  the  raised  letters  on  their  specially-made  books 
is  at  least  equaled  by  the  sense  of  "feel"  of  the  rope 
by  which  the  driller  can  tell  what  is  going  on  at  the 
bottom  of  the  hole,  two,  three  or  four  thousand  feet 
deep.  Many  wells  are  drilled  to  "the  top  of  the 
sand"  and  stopped  until  storage  tanks  and  pipe  line 
connections  are  made  to  take  care  of  the  oil  when 
the  well  is  "drilled  in." 

Many  unfortunate  and  costly  things  however 
can  happen  during  the  drilling  of  a  well :  the  cable 
may  break  resulting  in  a  "fishing  job"  that  may  last 
hours,  days,  weeks  or  months,  or  cause  the  abandon- 
ment of  the  well ;  the  string  of  tools  may  separate 

61 


THE  PETROLEUM  INDUSTRY 

causing  another  fishing  job;  the  walls  of  the  bore 
hole  may  collapse,  water  may  be  struck  once  or 
many  times,  and  every  time  it  must  be  "cased  off" 
by  setting  a  string  of  casing  on  the  next  lower  layer 
of  rock  and  reaching  to  the  surface.  After  pene- 
trating this  layer  of  rock,  water  may  be  struck 
again,  and  it  must  be  cased  off  with  another  and 
smaller  string  of  casing,  inside  the  first  string  and 
resting  on  the  second  layer  of  rock  and  reaching 
to  the  surface.  Most  wells  have  two  or  three  strings 
of  casing,  the  deeper  the  well  the  more  strings,  the 
size  of  the  drill  bit  being  reduced  with  each  string. 
When  oil  is  struck,  unless  the  flow  is  large,  the 
well  is  usually  "shot"  with  a  charge  of  from  10  to 
250  quarts  of  nitroglycerine  to  loosen  up  the  sand 
and  increase  the  flow  of  oil.  When  the  well  is  com- 
pleted all  of  the  casing  is  pulled  except  what  is 
considered  necessary  to  keep  the  bore  hole  from 
collapsing  or  to  protect  the  oil  sands  from  the  water. 
If  the  well  does  not  flow  naturally  it  is  pumped. 
In  this  case  a  2-inch  tube  is  inserted  reaching  from 
the  surface  to  the  oil  sand.  At  the  bottom  end  of 
this  tube  is  a  "working  barrel"  connected  with 
which  is  the  pump  rod  reaching  to  the  surface 
where  it  is  connected  with  the  "pump  jack"  which 

62 


THE  PETROLEUM  INDUSTRY 

in  turn  is  connected  by  either  cable  or  pull  rods  to  a 
central  "power"  in  the  pump  house.  These  powers, 
with  capacities  sufficient  to  pull  25  pump  jacks,  are 
driven  by  engines  using  gasoline  or  natural  gas,  or 
by  electric  motors. 

The  flow  pipe  leads  from  the  pump  jack  to  the 
flow  tank  usually  near  the  power  house  and  holding 
from  200  to  a  thousand  or  more  barrels  depending 
upon  the  daily  production  of  the  property.  These 
flow  tanks  are  connected,  through  the  oil  purchas- 
ing company's  gathering  lines,  to  their  pipe  lines 
which  lead  to  the  refinery. 

As  crude  oil  contains  either  paraffin  or  asphalt, 
or  both,  and  as  flowing  oil  carries  some  sand  v/ith 
it,  the  bottom  of  the  pipe  or  the  pump  sooner  or 
later  fills  up  and  must  be  cleaned.  Where  the 
working  barrel  and  the  oil  sand  meet  is  one  among 
the  most  vital  points  in  the  entire  matter  of  produc- 
tion, and  much  research  work  is  being  done  along 
the  line  of  a  better  understanding  of  actual  condi- 
tions at  this  strategic  point.  Not  only  do  these  con- 
ditions change  with  the  diminishing  gas  pressure 
but  they  change  with  the  manner  of  pumping  that 
is  directly  under  the  control  of  the  "pumper." 


63 


THE  PETROLEUM  INDUSTRY 


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Fig.  27— Log  of  Well. 

The  driller's  record  of  the  kind 
and  thickness  of  earth,  limestone, 
sandstone,  shale,  sand  and  water 
that  the  drill  penetrates  from  the 
surface  of  the  ground  to  the  bot- 
tom of  the  Well  is  called  the  "log," 
and  from  it  the  geological  depart- 
ment makes  a  drawing  like  the  cut 
shown  herewith.  The  log  of  a 
"test  well"  in  wildcat  territory  be- 
comes the  basis  for  drilling  in  that 
field,  and  the  more  wells  that  are 
drilled  the  more  information  be- 
comes available  to  guide  future 
drilling. 


64 


Figure  28  —  Pulley  and  bevel  gear  type  of  power  for  oper- 
ating pump  jacks.  Note  that  two  "pull  lines"  are  at- 
tached opposite  each  other,  to~each  of  the  three  eccen- 
trics, so  that  when  the  pump  ("sucker")  rod  in  one  well 
is  pulling  up  the  rod  in  the  other  well  is  going  down. 


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Figure  29  —  Electric  motor  connected  to  pump  jack.  On  oil 
properties  so  equipped  the  power  is  furnished  from  a  cen- 
tral power  plant  usually  owned  by  the  oil  company. 


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6jO 

THE  PETROLEUM  INDUSTRY 

Some  idea  of  the  cost,  in  1919,  of  drilling  a 
comparatively  deep  and  expensive  well  in  Oklahoma 
can  be  had  from  the  following  figures  from  the  "Oil 
and  Gas  Journal"  of  Tulsa : 

Lumber,  rig  irons  and  labor.  .  .$2,200 

Drilling,  2,500  feet 7,750 

Contract  day  labor 1,800 

Gas  engine,  setting  and  housing  1,975 

Tanks  and  tank  houses 1,750 

Miscellaneous  material 1,500 

Miscellaneous  labor 1,025 

Hauling 500 

Casing,  tubing,  rods  and  work- 
ing barrel 13,000 

Total  for  complete  well $31,500 

The  last  item  of  $13,000  indicates  that  an  un- 
usually large  amount  of  casing  was  used,  undoubt- 
edly due  to  striking  several  water  sands  each  of 
which  had  to  be  cased  off.  Comparatively  shallow 
wells  can  be  drilled  for  a  few  thousand  dollars.  The 
cost  of  wells  varies  with  their  depth,  the  number, 
hardness  and  thickness  of  rock  strata,  number,  size 
and  length  of  strfngs  of  casing,  fluctuations  in  the 
cost  of  material  and  labor,  distance  from  shipping 
point,  etc. 

65 


THE  PETROLEUM  INDUSTRY 

One  man,  usually  called  the  "pumper,"  can  take 
care  of  a  number  of  wells,  his  salary  ranging  from 
$150  to  $250  a  month.  To  this  expense  must  be 
added  the  cost  of  fuel  or  electricity  for  power  to 
pump  the  wells,  repairs  and  replacements  and,  most 
expensive  of  all,  the  cleaning  of  the  wells.  The 
frequency  of  cleaning  depends  entirely  upon  the 
nature  of  the  oil  sand  and  the  method  of  pumping. 
Only  in  recent  years  has  the  average  small  operator 
learned  the  importance  of  proper  pumping  of  wells 
and  that  a  well  can  be  "killed"  by  bad  pumping  or 
its  life  greatly  prolonged  by  good  pumping.  Even 
this  supposedly  small  item  of  when,  how  long,  how 
fast  and  how  often  to  pump  a  well  to  get  the  most 
oil  over  the  longest  period  of  time,  emphasizes  the 
fact  that  the  novice  in  the  oil  business  can  easily 
lose  all  of  his  capital  before  he  learns  how  to  protect 
it. 

Oil-bearing  sands  vary  in  thickness  from  a  few 
inches  to  a  hundred  feet  or  more,  and  in  size  from 
less  than  an  acre  to  great  oil  fields  covering  100 
square  miles  or  more.  The  total  area  of  the  Mid 
Continent  field  is  about  2,000  square  miles. 

Oil  sand  is  by  no  means  loose  sand  like  that  on 
the  banks  of  creeks  but  sandstone,  or  sandy  lime- 

66 


THE  PETROLEUM  INDUSTRY 

stone.  The  "absorbing  capacity"  of  sands  for  crude 
oil  varies  from  dense,  fine  grained  sands  that  will 
hold  only  a  small  percentage  of  their  volume  of  oil, 
to  open  porous  sands  that  will  hold  as  much  as  35% 
or  more  of  oil.  A  barrel  (42  gallons)  of  oil  con- 
tains 5.6  cubic  feet,  and  an  acre  of  ground  contains 
43,560  square  feet.  If  the  outside  drilHngs  of  an  oil 
pool  indicate  that  the  oil  bearing  sand  has  an  area 
of  10  acres  it  would  contain  435,600  square  feet, 
and  if  the  drillings  indicate  that  the  sand  averages 
15  feet  thick  there  would  be  6,534,000  cubic  feet  of 
sand.  If  the  sand  has  an  "absorbing  capacity"  of 
20%  the  pool  win  contain  1,306,800  cubic  feet  of 
crude  oil.  Dividing  this  by  5.6  we  have  about  234,- 
000  barrels  of  crude  oil  in  the  sand.  It  has  been 
estimated  that,  on  the  average,  probably  not  more 
than  50%  of  the  total  oil  in  the  sand  is  recovered 
by  present  methods,  hence  this  would  give  us  about 
117,000  barrels  of  oil  that  a  good  "pumper"  would 
get  from  the  pool.  Under  average  conditions  there 
should  not  be  more  than  one  well  to  each  5  acres, 
for  each  sand,  hence  2  wells  would  drain  this  pool 
at  a  minimum  of  expense.  Three  wells,  or  four 
wells  would  not  increase  the  amount  of  oil  in  this 
pool,  but  they  would  increase  the  expense — and 
thereby  reduce  the  p7'ofits. 

67 


THE    PETROLEUM    INDUSTRY 

Fig.  12  on  page  25  shows  a  part  of  the  famous 
Glenn  Pool  field  and  section  8  (an  inch  square) ,  con- 
tains one  square  mile  (640  acres).  The  NE14  of 
the  NEi/4  of  this  section  shows  13  wells  on  40  acres, 
which  indicates  that  two  or  more  sands  are  pro- 
ducing. One  of  the  things  that,  from  a  profit-mak- 
ing standpoint,  quickly  "killed"  the  Burkburnett 
field  in  1919,  and  that  is  a  menace  to  every  field  that 
is  cut  up  into  "town  lots,"  is  over-drilling,  and  it  is 
probably  true  that  the  losses  to  small  investors 
through  the  over-drilling  of  producing  territory  by 
small  companies  have  been  at  least  as  great  as  the 
losses  from  drilling  dry  holes. 

In  Fig.  12  the  four-pointed  stars  indicate  dry 
holes  while  the  six-pointed  stars  indicate  gas  wells 
— note  how  many  dry  holes  were  drilled  in  order 
to  define  the  border  of  the  producing  area. 

In  the  early  history  of  the  industry  only  the 
shallow  sands  were  reached,  but  deeper  drilling  fre- 
quently revealed  deeper  sands,  in  "layers,"  one 
above  another  separated  by  layers  of  different 
kinds  of  rock.  Every  year  has  seen  deeper  wells 
drilled  until  at  present,  especially  in  the  Mid  Con- 
tinent fields,  the  most  of  the  drilling  is  to  the  deeper 
sands,  sometimes  3,000  feet  or  more.    The  presence 

68 


THE  PETROLEUM  INDUSTRY 

in  any  field  of  several  layers  of  oil  sands  naturally 
adds  greatly  to  the  value  of  the  property  and  it  is 
not  unusual  in  some  areas,  to  see  several  wells,  each 
producing  from  a  different  oil  sand.  For  example, 
in  the  Gushing  (Oklahoma)  field  among  the  half- 
dozen  producing  oil  sands  and  several  gas  sands  the 
more  important  oil  sands  are  "Layton"  at  1,530 
feet,  "Wheeler"  at  2,330  feet  and  "Bartlesville"  at 
2,750  feet.  All  sands  differ  in  their  productiveness, 
rates  of  flow  and  to  a  much  smaller  extent  in  the 
nature  of  their  crude  oil. 

The  Bartlesville  sand  has  produced  90%  of  the 
oil  in  southeastern  Kansas  and  northeastern  Okla- 
homa, probably  50%  of  the  oil  of  the  Mid  Continent 
field  and  perhaps  more  oil  than  any  other  sand  in 
the  world. 

It  is  probably  the  general  impression  that  an 
oil  well  flows  "straight  oil,"  all  the  time — 'the  fact 
is  however  that  very  frequently  more  or  less  water 
and  sediment  are  mixed  with  the  oil,  the  fluid  being 
called  an  "emulsion."  The  simplest  and  cheapest 
way  to  separate  the  oil  from  the  water  and  sediment 
is  to  "let  gravity  do  it,"  in  "gun-barrel"  tanks  near 
the  well.  Recently  however  "de-hydrating"  plants 
are  being  installed  which  handle  large  quantities  of 

69 


THE  PETROLEUM  INDUSTRY 

the  emulsion  much  more  rapidly  than  the  gravity 
process. 

A  "de-hydrating"  plant  that  would  separate 
the  "water"  from  the  real  assets  of  fly-by-night  oil 
companies  would  certainly  save  millions  of  dollars 
to  the  investors  of  the  country. 

The  Get-rich-quick  Wallingfords  whose  opera- 
tions are  confined  to  the  "oil  game,"  and  who  know 
practically  nothing  of  the  "oil  business"  don't  tell 
their  prospective  investors  about  the  thousands  of 
oil  properties  whose  wells  'have  been  producing 
from  one  to  five  barrels  a  day  for  years  and  are  good 
for  years  to  come,  but  these  artists  in  "financial 
sleight-of-hand"  talk  glibly  about  their  property 
that  is  "close  in  to  a  gusher  that  the  papers  say 
spouted  clear  over  the  top  of  the  derrick  and  made 
100  barrels  the  first  hour." 

The  unusual  geological  formations  of  Mexico 
and  the  Baku  district  of  Russia  make  gushers  the 
usual  type  of  well  in  those  countries;  but  in  the 
United  States  our  gushers,  when  drilled  in  by  small 
producers,  have  in  a  general  way  been  misfortunes 
both  to  the  owners  and  to  the  public:  to  the  own- 
ers, because  when  they  struck  a  gusher  they  usually 
abandoned  the  conservative  basis  on  which  they  had 

70 


THE  PETROLEUM  INDUSTRY 

been  operating,  "plunged  on  gushers"  and  nearly 
always  lost  everything ;  and  gushers  have  been  mis- 
fortunes to  the  public  to  the  extent  that  they  have 
opened  the  way  to  many  crooked  promoters  who 
have  magnified  and  capitalized  the  gusher  idea  and 
thereby  created  a  distorted  impression  of  the  real 
oil  business  in  the  minds  of  the  investing  public. 

In  1920  it  was  estimated  that  there  were  about 
16,000  producers  of  crude  oil  in  the  United  States. 
Their  individual  production  varied  from  less  than 
one  barrel  per  day  to  70,000  barrels.  The  majority 
of  the  production  came  from  a  comparatively  small 
number  of  companies,  each  of  those  listed  in  Table 
7  reporting  a  production  of  over  1,000,000  barrels 
in  1919. 

In  addition  to  these  32  companies  there  proba- 
bly were  others  that  did  not  report  but  which  pro- 
duced a  million  barrels  or  more;  the  list  however 
contains  most  of  the  large  producers  in  the  United 
States.  In  1919  these  32  companies  produced  over 
218,667,000  barrels  of  oil,  or  about  58%  of  the  total 
production  of  the  United  States  for  that  year. 

As  32  companies  produced  58%  of  all  of  the  oil, 
the  remainder  of  the  16,000  companies  produced 
42% — hence   it   is   obvious  that,   in   order  for  the 

71 


THE  PETROLEUM  INDUSTRY 

Table   7  —  Companies   producing   over  1,000,000 
barrels  of  crude  petroleum  in  1919; 

Associated  Oil  Co. 

Barnsdall  Corporation 

Carter  Oil  Company 

Cities  Service  Company 

Cosden  Oil  and  Gas  Co. 

Doheny  Companies  of  Calif. 

Galena  Signal  Oil  Co.  of  Texas 

General  Petroleum  Corp. 

Gulf  Oil  Corporation 

Humble  Oil  and  Ref'g  Co. 

Magnolia  Petroleum  Co. 

McMan  Oil  and  Gas  Co. 

Mid  West  Ref'g  Co. 

Ohio  Cities  Gas  Co. 

Ohio  Oil  Company 

Oklahoma  Prod,  and  Ref  g  Corp. 

Prairie  Oil  and  Gas  Co. 

Producers  and  Refiners  Corp. 

Roxana  Petroleum  Co. 

Santa  Te  Railway 

Shaffer  Oil  and  Ref  g  Co. 

Shell  Co.  of  Calif. 

Sinclair  Consolidated  Oil  Corp. 

Southern  Pacific  Co. 

South  Penn  Oil  Co. 

Standard  Oil  Co.  of  Calif. 

Standard  Oil  Co.  of  La. 

Sun  Company 

Texas  Company 

Texas  Pacific  Coal  and  Oil  Co. 

Tide  Water  Oil  Co. 

Union  Oil  Co.  of  Calif. 

72 


THE  PETROLEUM  INDUSTRY 

smaller  producers  to  make  money,  they  must  have 
access  to  as  high  quality  of  technical,  engineering 
and  financial  services  as  the  large  producers  whose 
organizations  include  these  departments. 

Probably  the  greatest  handicap  to  the  small  pro- 
ducer is  his  lack  of  these  kinds  of  service  which  his 
organization,  because  of  lack  of  capital,  cannot  in- 
clude within  itself. 

Because  of  the  vital  need  for  this  kind  of  work 
there  have  been  evolved  during  recent  years  several 
lines  of  technical  and  professional  service  intended 
especially  for  the  oil  industry.  These  include  Con- 
sulting Petroleum  Geologists,  Petroleum  Chemists 
and  Petroleum  Engineers.  All  of  these  are  on  the 
same  high  plane  as  similar  services  in  other  indus- 
tries and  it  is  not  too  much  to  say  that  to  this  kind 
of  work,  whether  found  in  large  companies  or  small 
companies,  is  due  a  large  part  of  the  credit  for  the 
recent  remarkable  advancement  and  increased  effi- 
ciency in  the  producing,  transporting  and  refining 
ends  of  the  industry. 


73 


CHAPTER  V 
TRANSPORTATION 

Transportation,  in  the  oil  business,  starts  at 
the  well  and  ends  at  the  refinery.  Its  equipment 
consists  of 

1 — Gathering  lines 

2 — Pipe  lines 

3 — Pumping  stations 

4 — Storage  tanks  and  reservoirs 

5 — Tank  cars 

6 — Tank  steamers 
For  several  years  after  the  discovery  of  oil  in 

1859  it  was  transported  in  iron-hooped  wooden  bar- 
rels by  flatboat  or  wagon,  four  to  ten  barrels  mak- 
ing a  wagon  load.  Excessive  charges  by  teamsters, 
together  with  the  frequent  and  large  losses  by  flat- 
boat  jams  naturally  led  to  the  modern  pipe  line.    In 

1860  S.  D.  Karns,  of  Parkersburg,  W.  V.,  suggested 
a  six-inch  line  from  Burning  Springs  to  Parkers- 
burg, a  distance  of  30  miles,  the  oil  to  flow  by  grav- 
ity; but  the  project  fell  through.    In  1863    a    Mr. 

74 


THE  PETROLEUM  INDUSTRY 

Hutchings  actually  laid  a  line  over  a  hill  from  the 
Tarr  farm  near  Tftusville  to  the  Humboldt  Refinery 
at  Plumer.  The  length  was  21/2  miles  and  the  siphon 
principle  was  used  to  move  the  oil.  The  teamsters 
tore  up  this  line  and  two  others  that  Hutchings 
built  and  he  died  penniless. 

The  first  successful  pipeline  was  built  by  Sam- 
uel Van  Syckel  of  Titusville  during  the  summer  of 
1865.  It  connected  Pithole  City  and  Miller's  farm 
four  milea  distant.  For  safety  it  was  buried  two 
feet  under  ground. 

In  1865  Henry  Harley  built  a  line  from  Ben- 
ninghoff  Run  to  Shaffer  farm  on  the  Oil  Creek  rail- 
road but  the  teamsters  not  only  cut  the  pipe  but 
burned  his  gathering  tanks.  The  state  furnished 
armed  protection  and  the  line  2  inches  in  diameter 
was  finished  and  rated  at  800  barrels  a  day.  This 
line,  and  a  second  one,  were  so  successful  that  capi- 
talists soon  consolidated  them.  About  this  time  Har- 
ley organized  the"  first  pipe  line  company,  the 
"Pennsylvania  Transportation  Company,"  and  built 
a  line  from  the  Pennsylvania  oil  fields  to  the  Atlan- 
tic seaboard. 

It  has  been  estimated  that  there  are  today  in 
the  United  States  34,000  miles  of  main  trunk  pipe 

75 


THE  PETROLEUM  INDUSTRY 

lines  and  11,500  miles  of  gathering  lines,  making  a 
"transportation  system"  45,500  miles  long — longer 
by  far  than  the  greatest  railroad  system  in  the 
world.  For  the  railroads  to  have  replaced  the  pipe 
lines  and  hauled  the  crude  oil  that  was  produced 
east  of  the  Rocky  Mountains  every  day  in  1920 
would  have  required  90,000  tank  cars  and  2,000 
locomotives. 

The  building  of  a  pipe  line  is  very  similar  to 
the  building  of  a  railroad.  First  comes  the  "sur- 
veying gang"  which  determines  the  route,  and  se- 
cures rights  of  way,  sites  for  pumping  stations,  etc. 
It  is  followed  by  the  "right-of-way"  gang  that  cuts 
down  trees,  clears  the  way,  builds  bridges,  delivers 
pipe  at  convenient  intervals  and  gets  everything 
ready  for  the  "stringing  gang."  These  men  distrib- 
ute the  pipe  for  the  "pipe  laying  gang"  that  screw 
the  lengths  together.  A  gang  usually  consists  of  40 
to  75  men  and  they  average  from  a  half  to  three- 
quarters  of  a  mile  a  day.  Following  them  comes  the 
"ditching  gang"  that  digs  the  trench  and  buries  the 
pipe  from  18  inches  to  3  feet  deep. 

Main  trunk  pipe  lines  vary  from  6  to  14  inches 
in  diameter,  the  most  common  size  being  8  inches. 
They  are  of  high  grade,  seamless  steel,     carefully 

76 


THE  PETROLEUM  INDUSTRY 

threaded  and  tested  to  an  internal  pressure  of  1,000 
pounds  to  the  square  inch.  Gathering  lines  vary 
from  4  to  6  inches  in  diameter.  Where  possible  the 
pipe  lines  follow  railroads  and  public  roads  to  facil- 
itate repair  work.  The  "line  rider"  patrols  the  line 
summer  and  winter. 

The  organization  of  the  pipe  line  company  is 
similar  to  that  of  the  railroad  company,  having  gen- 
eral offices  and  branch  offices.  The  pipe  line  sys- 
tem is  divided  into  divisions,  each  under  a  division 
superintendent.  The  division  is  usually  divided  into 
districts,  each  under  a  foreman.  The  general  office 
includes  the  Oil  Transportation,  Engineering,  Legal, 
Tax,  Accounting  and  Telegraph  and  Telephone  de- 
partments, each  described  in  a  general  way  by  its 
name. 

Booster  or  pumping  stations  are  located  along 
the  lines  to  keep  the  crude  oil  moving  at  the  desired 
rate.  The  distance  between  stations  depends  upon 
the  nature  of  the  country  and  the  viscosity  of  the 
oil.  In  the  Mid-Continent  field  the  average  distance 
is  about  35  miles  and  in  California  about  12  miles. 
Some  stations  handling  extra  heavy  oil  on  an  "up 
grade"  are  as  close  as  two  miles  and  others  handling 
light  oils  on  a  "down  grade"  are  as  far  apart  as  90 

77 


THE   PETROLEUM   INDUSTRY 


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79 


THE  PETROLEUM  INDUSTRY 

miles.  Some  oils  are  so  heavy  that  they  must  be 
heated  before  entering  the  pipe  line.  The  pumps 
that  drive  the  oil  through  an  8-inch  pipe  line  are 
powerful  enough  to  deliver  30,000  barrels  of  me- 
dium light  oil  in  24  hours  with  a  line  pressure  of 
about  800  pounds  to  the  square  inch. 

When  oil  of  a  different  grade  is  sent  through  a 
pipe  line,  a  header  is  injected  into  the  line.  This  is 
a  slug  of  wa'ter  about  three  feet  long  and  separates 
the  grades.  When  pumping  of  the  different  grade 
is  completed  another  header  is  inserted,  followed  by 
the  original  grade.  Occasionally  a  bullet-like  "go- 
devil"  is  pumped  through  the  pipe  with  the  oil.  The 
revolving  knives  cut  from  the  walls  of  the  pipe  the 
accumulated  sediment  which  would  soon  plug  it  up 
if  not  removed. 

When  an  oil  company  leases  land  the  "Oil 
Lease,"  usually  made  for  five  years,  provides  for  an 
annual  rental  to  be  paid  to  the  owner  arid  varying 
from  a  few  cents  to  several  dollars  an  acre.  When 
oil  is  struck  rentals  are  replaced  by  a  "royalty"  of 
usually  i/s  of  the  oil,  the  other  %  going  to  the 
oil  company.  The  pipe  line  company  whose  lines 
connect  with  the  field  tanks  empty  them  when  filled 
and  pay  for  the  oil  usually  twice  a  month,  Ys  going 

80 


Figure  33  —  P^pe  line  being  laid  through  a  forest  in  the  Gulf 
Coast  field. 


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THE  PETROLEUM  INDUSTRY 

to  the  producing  company  and  Vs  to  the  owner  of 
the  royalty  interest.  This  simple  transaction  may 
have  some  variations  as  the  producing  company  may 
also  be  the  owner  of  the  pipe  line  or  the  owner  of 
the  royalty  may  sell  all  or  part  of  his  royalty.  With- 
in recent  years,  and  especially  since  the  passage  of 
the  Revenue  Act  of  1918,  a  great  deal  of  attention 
has  been  given  to  the  scientific  valuation  of  oil  and 
gas  properties.  Statistics  have  been  collected  cover- 
ing the  production  history  of  thousands  of  wells, 
and  all  of  the  fields.  In  hundreds  of  instances  these 
records  cover  a  number  of  years.  Petroleum  En- 
gineers have  studied  these  records  carefully  in  con- 
nection with  personal  examinations  of  the  oil  fields 
in  order  to  establish  fair  standards  of  value  based 
on  both  present  production  and  probable  future 
production. 

As  the  royalty  represents  one-eighth  of  the  to- 
tal production  Trom  the  property  it  has  come  to  have 
a  definite  merchantable  value  and  as  a  result  much 
"trading  in  royalties"  goes  on  in  the  oil  territories. 
The  price  is  usually  on  the  "barrel-per-day"  basis 
and  prices  range  from  $1,000  to  $3,000  per  barrel, 
or  more,  depending  upon  many  factors  which  no 
one  but  an  experienced  oil  man  can  iveigh  with  reas- 
onable accuracij. 

81 


THE   PETROLEUM   INDUSTRY 

Storage  tanks  belonging  to  producers  are  usual- 
ly of  wood  and  hold  only  a  few  hundred  barrels,  ex- 
cept on  large  properties,  as  the  pipe  line  company 
"runs"  the  oil  to  its  own  storage  when  the  well  tank 
is  filled.  Most  of  the  pipe  lines  are  owned  by  re- 
fineries, hence  their  storage  tanks  are  usually  built 
near  the  refinery  in  groups  called  "Tank  Farms." 
These  farms  frequently  cover  hundreds  of  acres  and 
sometimes  contain  dozens  of  tanks.  The  usual  sizes 
are  37,500  and  55,000  barrels,  the  latter  being  115 
feet  in  diameter  and  35  feet  high.  With  crude  oil  at 
$2.00  a  barrel  a  "55"  will  hold  $110,000  worth. 
Lightning  is  the  worst  enemy  of  the  steel  tank  and 
losses  from  it  are  frequent. 

The  storage  tanks  of  the  United  States  for  the 
last  several  years  have  carried  an  average  of  well 
over  100,000,000  barrels  of  crude  oil  or  about  3 
months'  supply. 

In  186B  Lawrence  Myers  built  a  "Rotary  Oil 
Car" — a  flat  car  with  two  sloping  tanks  mounted  on 
it,  similar  to  the  field  tanks  of  today.  Each  tank 
held  about  40  barrels ;  thus  "a  car  of  oil"  was  about 
80  barrels.  The  first  of  these  cars  arrived  in  Titus- 
ville  November  1,  1865,  and  was  loaded  at  the  Mil- 
ler farm.    This  car  was  owned  by  the  Eagle  Trans- 

82 


THE  PETROLEUM  INDUSTRY 

porfation  Company  oT  Philadelphia  which  also  own- 
ed the  patent  on  it.    In  1866  Dillingham  and    Cole, 

Table  9  —  Some  large  oivners  of  tank  cars. 

Santa  Fe  Railroad  Co 3,178 

Southern  Pacific  Railway 2,963 

Missouri,  Kansas  &  Texas  R.  R 677 

St.  Louis  &  San  Francisco  R.  R 629 

Pennsylvania  R.  R.  Co 514 

American  Refining  Co 256 

Associated  Oil  Co 337 

Central  Refining  Co 293 

Constantin  Refining  Co 500 

Consumers  Refining  Co 379 

Cosden   Company 2,163 

Empire   Refineries 2,100 

Gulf  Refining  Co 1,411 

Indiana  Refining   Co 1,032 

Magnolia  Petroleum  Co 590 

Ohio  Cities  Gas  Co 900 

National  Refining  Co 1,004 

Pierce  Oil  Corporation 643 

Sinclair   Refining  Co 3,700 

Standard  Oil  Co.   (Union  Tank) 21,600 

Texas   Company 3,435 

83 


THE  PETROLEUM  INDUSTRY 

machinists  of  Tftusville,  built  60  tank  cars  for  the 
Oil  Creek  railroads.  These  were  built  of  iron,  about 
90  barrel  capacity,  and  fitted  with  gate  valves. 

In  1868  the  first  car  with  a  horizontal  cylindri- 
cal tank  was  shipped  to  the  Oil  Creek  fields  to  be 
tried  out.  Its  capacity  was  about  80  barrels,  later 
increased  to  100,  which  became  the  standard  size 
for  many  years.  It  was  so  superior  to  the  old  type 
barrel  car  that  within  a  few  years  they  had  disap- 
peared. 

January  1,  1921,  there  were  in  use  in  the 
United  States  and  Canada  137,493  tank  cars  used 
for  the  transportation  principally  of  the  refined 
products  of  oil — and  in  the  case  of  new  fields  lack- 
ing pipe  line  connections,  of  crude  oil. 

The  first  vessel  to  carry  a  cargo  of  oil  exclu- 
sively was  a'fittle  sailing  vessel,  Elizabeth  Watts,  of 
224  tons,  plying  between  Philadelphia  and  London. 
The  first  cargo  consisted  of  1,329  barrels  and  the 
first  trip  was  made  in  November,  1861.  The  cost  of 
transportation  was  "eight  shillings  per  barrel  deliv- 
ered with  5  per  cent  primage,  payable  cash  on  right 
delivery  of  cargo  without  discount."  They  were  al- 
lowed 10  working  days  for  loading  the  vessel  and  12 
working  days  for  unloading  with  $25  a  day  demur- 
rage. 

84 


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THE  PETROLEUM  INDUSTRY 

The  tanker  of  the  older  design  dates  from  Aug- 
ust, 1863,  when  the  Atlantic  was  launched  on  the 
river  Tyne  in  Yorkshire,  England;  the  vessel  was 
never  put  into  commission  however.  The  first  tank- 
er to  go  into  actual  service  was  the  Belgian  sailing 
ship,  Charles,  of  794  tons,  fitted  with  pumps  for 
loading  and  59  iron  tanks  with  a  combined  capacity 
of  7,000  barrels.  Regular  trips  were  made  from  New 
York  to  European  ports  from  1869  to  1872  and  as  a 
result  barrel-carrying  ships  quickly  disappeared. 
Because  of  the  fear  of  fire  from  oil  it  was  almost 
impossible  at  first  to  secure  a  crew  for  an  oil  carry- 
ing vessel,  and  for  years  the  ocean  transportation  of 
oil  was  confined  to  sailing  vessels,  steam  vessels  be- 
ing used  many  years  later. 

The  first  tanker  of  the  modern  type,  the  Zoroas- 
ter, was  built  by  Ludwig  Nobel,  Russian  oil  pioneer, 
in  1878  and  was  followed  by  the  Buddah  in  1879. 
From  this  date  on  the  building  of  tankers  pro- 
gressed rapidly. 

On  account  of  the  use  of  fuel  oil  by  our  mer- 
chant marine,  and  especially  by  our  navy,  oil-bunk- 
ering stations  for  the  use  of  United  States  vessels 
are  being  located  at  strategic  positions  in  the  path- 
ways of  commerce  all     around  the  world.     Recent 

85 


THE  PETROLEUM  INDUSTRY 

statistics  showed  that  of  the  114  oil-bunkering  sta- 
tions in  the  world  83  were  owned  by  the  United 
States.  These  stations  under  the  Stars  and  Stripes 
are  located  at  the  chief  ports  on  the  Atlantic  and 
Pacific  coasts,  the  Great  Lakes  and  the  Gulf  of  St. 
Lawrence.  In  South  America  they  are  located  at 
the  chief  ports  of  Brazil,  Uruguay,  Argentine,  Chile 
and  Peru.  Stations  are  located  at  both  approaches 
of  the  Panama  Canal  and  at  several  points  in  the 
West  Indies.  Nine  stations  are  located  in  Great 
Britain,  3  in  Norway,  2  in  Sweden,  3  in  Denmark,  5 
in  Italy,  1  in  Tunis,  1  in  Egypt — with  other  stations 
being  added.  During  the  world  war,  while  gasoline 
helped  the  automobile,  the  truck,  the  tractor  and  the 
tank  to  "do  their  bit"  on  land,  and  the  aeroplane  in 
the  air,  fuel  oil  was  among  the  most  potent  factors 
on  the  sea. 

Oil-bunkering  ships  using  flexible  pipe  lines 
replenish  the  tanks  of  ships  on  the  high  seas  at  the 
rate  of  1,000  barrels  an  hour,  while  both  vessels  are 
under  slow  speed.  The  latest  changes  in  ship  design 
have  been  brought  about  by  the  substitution  of  oil 
for  coal. 


86 


CHAPTER  VI 
REFINING 

Almost  all  of  the  crude  oil  produced  in  the 
United  States  is  "distilled"  by  the  refineries.  If  the 
distillation  process  is  carried  far  enough  about  300 
different  products  can  be  obtained,  although  four  of 
them  made  up  about  89 ^c  of  the  quantity  and  over 
91%  of  the  value  of  the  refined  products  made  from 
all  kinds  of  crude  oil  in  the  United  States  in  1918 : 


Products 

Quantity 

Value 

Gasoline 

23.47% 

45.99% 

Kerosene 

12.00 

9.18 

Gas   and   Fuel 

oil 

48.16 

25.99 

Lubricants 

5.54 

10.31 

89.17%  91.47%o 

The  present  high  state  of  development  of  re- 
fining is  emphasized  by  the  fact  that  in  the  early 
years  of  the  petroleum  industry  "coal  oil"  was  the 
only  product  obtained  from  crude  oil.  The  residue 
containing  gasoline,  lubricating  oils,  wax  oils,  etc., 

87 


THE  PETROLEUM  INDUSTRY 

that  are  so  valuable  today,  was  either  thrown  away 
as  useless  or  sold  for  a  trifle  to  anyone  who  could 
find  use  for  it.  Based  on  1918  data  this  waste 
would  have  amounted  to  91%  of  the  value  of  the 
products  that  might  have  been  obtained  from  the 
crude  oil — and.  these  products  would  have  been 
worth,  at  retail  prices,  over  a  Billion  Dollars. 

The  general  process  of  refining  is  fundamental- 
ly very  simple.  Petroleum,  usually  called  "crude 
oil,"  is  a  liquid  made  up  of  a  number  of  different 
products,  each  having  a  different  vaporizing  tem- 
perature— and  this  fact  is  the  basis  of  the  refining 
industry. 

Reduced  to  its  simplest  form  a  refinery  would 
consist  of 

1— A  still 
2 — A  cooling  tank 
3 — A  tail  house 
4 — Storage  tanks 
Beginning  at  about    200     degrees  Fahrenheit, 
and  ending  at  about  500  degrees,  these  products  of 
crude  oil  are  vaporized,  each  at  its  own  particular 
temperature.    The  vapors  of  the  "lightest"     (least 
dense)  products  pass  off  first,  then  the  next  light- 
est, and  so  on  until,  with  the    heat    gradually  in- 

88 


THE  PETROLEUM  INDUSTRY 

creasing,  all  of  the  products  desired  are  obtained. 
Each  of  these  products  is  called  a  ''fraction"  of 
crude  oil,  hence  the  refining  process  is  called  "the 
fractional  distillation  of  petroleum." 

After  the  fire  has  been  burning  for  several 
hours  and  the  hundreds  of  barrels  of  crude  oil  in 
the  "still"  get  hot  enough  to  vaporize,  the  vapor 
passes  through  the  pipe  leading  from  the  still  to  the 
cooling  tank  which  is  filled  with  cold  water.  Dur- 
ing its  passage  through  the  hundreds  of  feet  of  pipe 
in  this  cooling  tank  the  greater  part  of  the  vapor 
changes  to  liquid.  Completing  its  passage  through 
the  cooling  tank  it  flows  to  the  tail  house  which  is 
in  charge  of  the  "stillman."  As  the  liquid  flows 
through  the  "look  box"  (1)  he  takes  samples  from 
time  to  time  to  find  their  density  (specific  gravity) . 
Knowing  the  specific  gravity  of  each  of  the  differ- 
ent fractions,  together  with  their  color  and  how 
they  "feel"  to  the  touch  (the  latter  two  are  acquired 
by  long  years  of  experience)  he  can  tell  when  prac- 
tically all  of  the  first  fraction  has  passed  over.  This 
flows  into  storage  tank  2,  valve  3  being  open  and 
valve  4  closed.  By  closing  valves  3  and  6  and  open- 
ing valves  4  and  5  the  second  fraction  flows  into 
storage  tank  7 — and  so  on  with  the  remaining  frac- 
tions, each  going  into  its  own  tank,  until  the  crude 

sa 


THE  PETROLEUM  INDUSTRY 


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Figure  41  —  "Look  boxes"  in  the  tail  house  (sometimes 
called  the  receiving  house)  of  a  refinery.  As  the  liquid 
flows  from  the  end  of  the  pipe  in  the  look  box  the  stillman 
can  tell  by  its  specific  gravity  and  color  when  to  cut  the 
flow  from  one  rundown  storage  tank  to  another.  This  is 
done  by  a  system  of  manifolds  that  control  the  flow  to 
each  rundown  tank. 


THE  PETROLEUM  INDUSTRY 

oil  is  distilled  down  as  far  as  that  particular  type  of 
refinery  takes  it. 

As  it  is  impossible  for  the  "stillman"  to  make 
an  exact  "cut"  from  one  fraction  to  another,  most  of 
the  fractions  are  re-distilled  with  much  more  care, 
and  each  fraction  is  thereby  broken  up  into  a  num- 
ber of  fractions.  In  the  "complete"  refineries  this 
re-distillation  process  becomes  a  highly  technical 
matter — ^^but  without  it  we  would  not  have  the  300 
products  of  petroleum. 

The  still  is  equipped  with  a  thermometer  (this 
particular  kind  is  called  a  pyrometer)  that  indi- 
cates the  temperature  of  the  crude  oil  within.  The 
first  vapors  to  be  formed  are  crude  naphtha,  from 
which  naphtha,  benzene  and  gasoline  are  obtained 
by  re-distillation.  These  vapors  begin  to  form  at 
about  200  degrees  Fahrenheit  and  end  at  about  250 
degrees.  Then  comes  kerosene  distillate  vapors 
from  250  to  about  300  degrees;  then  gas  oil  vapors 
from  300  to  350 ;  then  parafiin  distillate  vapors  from 
350  to  500  degrees.  The  residue  is  cylinder  stock 
and  from  it  are  obtained  tar,  asphalt,  road  oil,  flux, 
tailings,  coke,  etc. 

The  small  circles  shown  in  the  bottom  of  the 
still,  just  over  the  fire,  represent     pipes     through 

91 


THE  PETROLEUM  INDUSTRY 

which  steam  under  high  pressure  is  blown  into  the 
crude  oil  to  keep  it  from  "burning"  where  the  flame 
strikes  the  still.  Coke  stills  are  not  equipped  with 
these  steam  pipes  as  the  oil  which  they  use  has  al- 
ready had  the  more  valuable  products  removed  by 
other  stills. 

The  type  of  still  just  described  is  known  as  a 
"batch  still"  as  it  is  charged,  closed,  fired  for  20  to 
40  hours  and  then  cleaned  for  another  batch.  In  re- 
cent years  the  idea  of  "continuous"  distillation  has 
been  successfully  worked  out,  the  process  removing 
only  the  lighter  fractions  of  the  crude,  hence  such 
refineries  belong  in  the  skimming  plant  group. 

By  consulting  the  first  paragraph  of  this  chap- 
ter you  will  see  that  gasoline  and  kerosene  repre- 
sented about  55%  of  the  value  of  the  crude  oil  re- 
fined in  1918 — and  when  you  stop  to  think  that  mil- 
lions of  barrels  of  crude  oil,  direct  from  the  well, 
have  been  burned  for  "fuel  oil"  you  will  realize  the 
tremendous  economic  loss  sustained  through  failure 
to  remove  these  more  valuable  products  before 
using  the  less  valuable  for  fuel. 


92 


THE  PETROLEUM  INDUSTRY 

There  are  three  types  of  oil  refineries : 
1 — Skimming  plants 
2 — Lubricating  and  wax  plants 
3 — Complete  run  down  refineries 
Fig.  42  shows  graphically  the  scope  of  work  of  each 
of   these   refineries.      The   slamming   plant   starts 
with  crude  oil  and  gets  from  it  gasoline,  kerosene, 
gas  oil  and  fuel  oil.     The  lubricating  and  wax  plant 
starts  with  crude  oil  and  gets  from  it  the  same  pro- 
ducts as  the  skimming  plant  and  in  addition  breaks 
up  the  fuel  oil  into  equal  parts  of  paraffin  distillate 
and  cylinder  stock.  The  paraffin  distillate  is  broken 
up  into  lubricating  oils  and  paraffin  wax  while  the 
cylinder  stock  is  sold.    The  complete  run  down    re- 
finery starts  with  crude  oil  and  makes  all  of  the 
products  that  the  skimming  plant  and  the  lubri- 
cating and  wax  plant  make  and  in  addition  makes 
bright   stock   and   petrolatum,    from   which   many 
more  products  are  made. 

The  simplest  proposition,  and  the  one  requiring 
the  least  investment  of  capital,  is  naturally  the 
skimming  plant  which  yields  four  products.  The 
lubricating  and  wax  plant  requires  a  much  larger 
investment  and  yields  a  larger  line  of  products, 
while  the  complete  run  down  refinery  could  probably 

93 


THE  PETROLEUM  INDUSTRY 


94 


THE  PETROLEUM  INDUSTRY 

not  be  built  to  operate  economically  for  less  than 
a  half-million  dollars,  the  average  investments  run- 
ning from  one  to  five  million  dollars,  or  more. 

These  three  types  of  refineries  are  the  results 
of  different  purposes  of  different  refiners  as  to  the 
products  they  want  to  get  from  crude  oil  for  the 
class  of  people  they  intend  to  serve. 

Thus  the  same  general  principle  prevails  in  the 
refining  business  that  prevails,  for  example,  in  the 
iron  business  w^here  different  manufacturers  make 
different  metal  products  from  the  same  iron  ore.  It 
is  a  well  known  fact  in  the  iron  industry  that  after 
ore  is  brought  to  the  surface  its  later  treatment  is 
almost  entirely  a  question  of  chemistry  and  engi- 
neering— and  it  should  be  as  universally  known 
that  after  crude  oil  is  brought  to  the  surface  its 
usefulness  to  mankind  as  well  as  its  profitableness 
to  investors  in  refinery  securities  is  largely  a  ques- 
tion of  chemistry  plus  sound  business  policies  and 
principles. 

If  the  market  for  crude  oil  is  "low"  the  com- 
panies with  plenty  of  storage  fill  their  tanks  with 
"cheap  oil",  but  before  running  it  into  storage  they 
"top"  it  by  removing  the  lightest  fractions  (mostly 
gasoline),  much  of  which  would  evaporate  if  left  in 

95 


THE  PETROLEUM  INDUSTRY 

storage  for  several  months.     Plants     specially     de- 
signed for  this  work  are  called  "topping"  plants. 

From  1912  to  1920  the  annual  production  of 
petroleum  in  the  United  States  doubled — but  the 
production  of  automobiles  and  motor  trucks  in- 
creased six  times,  as  shown  in  Table  10.  This  rep- 
resents one  of  the  many  conditions  in  our  rapid  in- 
dustrial development  which  has  made    necesssary 


Table  10  —  Growth  in  production  of  peti^oleum, 
gasoline  and  motor  vehicles: 


Petroleum 

Gasoline    Automobiles  & 

lear 

Barrels 

Gallons     Motor  Trucks 

1912 

222,000,000 

1,008,000,000 

378,000 

1913 

248,000,000 

1,260,000,000 

485,000 

1914 

265,000,000 

1,512,000,000 

569,000 

1915 

281,000,000 

1,764,000,000 

892,000 

1916 

300,000,000 

2,058,000,000 

1,583,000 

1917 

335,000,000 

2,850,000,000 

l,868,00a 

1918 

355,000,000 

3,570,000,000 

1,153,000 

1919 

377,000,000 

3,957,000,000 

1,974,000 

1920 

443,0011,000 

4,870,000,000 

2,241,000 

Note — In  1904  the  yield  of  gasoline  luas  10.3 
per  cent  of  the  crude  oil  run  to  refineries,  ivhereas 
in  1920  the  yield  ivas  26.2  per  cent. 


96 


Figure  43  —  The  rear  end  of  a  fire  still,  showing  the  "vapor 
lines"  leadng-  to  the  cooling  tanks.  The  engines  in  the 
pump  house  pump  the  crude  oil  from  the  crude  oil  storage 
tanks  to  the  stills,  as  well  as  the  different  fractions,  from 
one  part  of  the  plant  to  another,  and  finally,  as  finished 
products,  into  the  usual  transporter*,  the  tank  car. 


THE  PETROLEUM  INDUSTRY 


Table    11-A  —  Growth    in   capacity    of   cracking 
plant  stills: 

Year  Cracked  gasoline,  gallons 

1913  42,000,000 

1911  126,000,000 

1915  168,000,000 

191^  252,000,000 

1917  378,000,000 

1918  756,000,000 

Table  11-B  —  Growth  in  production  of  casing- 
head  gasoline,  from  both  compression  and  ab- 
sorption plants: 

Gasoline  Produced  Per  Gallon 

Year     Plants        Gallons  Value  Cents 

1911  176  7,425,839  $    531,704  7.16 

1912  250  12,081,179  1,157,476  9.6 

1913  341  24,060,817  2,458,443  10.22 

1914  386  42,652,632  3,105,909  7.28 

1915  414  65,364,665  5,150,823  7.88 

1916  596  103,492,689  14,331,148  13.85 

1917  886  217,884,104  40,188,956  18.45 

1918  1,004      282,535,550         50,363,535  17.8 


97 


THE  PETROLEUM  INDUSTRY 

the  "cracking  plant"  type  of  refinery.  The  crack- 
ing process  consists  of  the  re-distillation  of  heavy 
distillates  in  high-pressure,  high-temperature  stills 
for  the  primary  purpose  of  getting  an  additional 
amount  of  gasoline  from  them;  hence  a  skimming 
plant  or  a  lubricating  and  wax  plant  or  a  complete 
refinery  might  each  have  a  battery  of  "cracking 
stills." 

Table  11-A  shows  the  growth  in  capacity  of 
cracking  plant  stills  in  the  United  States — but  it 
must  be  remembered  that  every  year's  crude  oil 
production  sets  the  limit  on  the  maximum  amount 
of  distillates  that  can  be  cracked,  and  that  there  is 
a  limit  beyond  which  no  chemist  can  go  in  obtain- 
ing gasoline  from  petroleum. 

While  several  cracking  processses  are  now  in 
use  nearly  all  of  the  cracked  gasoline  is  made  today 
by  the  Burton  process  invented  by  Dr.  Burton, 
President  of  the  Standard  Oil  Company  of  Indiana. 
Thia  process  is  leased  to  certain  other  companies, 
principally  of  the  Standard  Oil  "group". 

The  question  of  continuing  to  obtain  sufficient 
gasoline  to  meet  our  rapidly  expanding  needs  has 
become  so  serious  that  the  International  Associa- 
tion of  Recognized   Automobile    Clubs    offered    a 

98 


THE  PETROLEUM  INDUSTRY 

prize  of  $100,000  for  a  gasoline  substitute  to  cost 
less  than  gasoline. 

Crude  oil  is  usually  divided  into  two  kinds: 
1 — Paraffin  base 
2 — Asphalt  base 
The  paraffin  base  crudes  are  the    "light"    crudes, 
while   the   asphalt   base   crudes    are   the    "heavy" 
crudes. 

The  crude  oil  of  Pennsylvania  is  paraffin  base 
hence  the  making  of  illuminating  oil  and  "wax" 
candles  sprang  up  early  in  that  territory.  The  par- 
affin base  crudes  also  contain  larger  percentages  of 
gasoline  and  naphtha  than  the  heavy  crudes,  hence 
the  price  of  crude  oil  at  any  given  time  varies  wide- 
ly over  the  United  States  and  may  range  from  50 
cents  to  $6.00  a  barrel.  This  variation  is  due  to  a 
number  of  factors,  the  most  important  of  which  is 
the  percentage  of  the  more  valuable  products  that 
can  be  refined  from  the  different  kinds  of  crude. 

By  referring  to  Table  1  you  will  see  that  in 
1920  Appalachain  crude  averaged  about  $5.50  a  bar- 
rel, Illinois  crude  about  $4.00,  Mid-Continent  crude 
about  $3.50,  Gulf  Coast  crude  about  $2.40  and  Cali- 
fornia cru'de  about  $1.85.  While  the  old  saying  is 
true,  that  "no  two  crudes  are  alike,"  yet  the  oil 

99 


THE  PETROLEUM  INDUSTRY 
Table  12  ■ —  Petroleuyn  products  for  the  year  1920 : 

Gasoline    4,882,000,000  gallons 

Kerosene  2,320,000,000  gallons 

Gas  and  Fuel  oils 8,861,000,000  gallons 

Lubricating   oils 1,046,000,000  gallons 

Paraffin   wax    541,000,000  pounds 

Coke    576,000  tons 

Asphalt   1,290,000  tons 

Miscellaneous   1,492,000,000  gallons 

The  principal  items  making  up  the  "Miscella- 
neous" item  above  are  as  follows: 

Gallons 
Distillates  787,000,000 

Tops  107,(700,000 

Road  oil  60,000,000 

Flux  34,000,000 

Sludge  19,000,000 

Petrolatum  6,000,000 

Tailings  5,000,000 

Acid  oil  5,000,000 

Tar  4,000,000 

Wax  tailings  3,000,000 

Medicinal  oils  1,000,000 

Some  of  the  remaining  items  are  pitch,  paint 
products,  roofer's  wax,  binder,  mineral  turpentine 
— the  complete  list  would  contain  about  300  items. 

100 


THE  PETROLEUM  INDUSTRY 

from  the  wells  and  pools  in  the  same  fields  are 
sufficiently  similar  to  be  classed  as  either  paraf- 
fin base  or  asphalt  base,  although  there  are  a  few- 
instances  where  they  are  "mixed  base."  By  a  broad 
general  classification  Eastern,  Mid  Continent  and 
Rocky  Mountain  crudes  are  paraffin  base,  while 
California,  Gulf  Coast  and  Mexican  crudes  are  as- 
phalt base.  The  heavy  crudes  produce  little  gaso- 
line except  by  cracking,  but  they  yield  large 
amounts  of  lubricating  oils,  asphalt,  tar  and  coke. 

In  1920  the  United  States  produced  443,000,- 
000  barrels  of  crude  oil  and  during  the  same  year 
her  refineries  turned  out  the  products  shown  in 
Table  12. 

To  an  English  chemist,  James  Young,  is  due  the 
credit  for  working  out  the  process  of  refining  crude 
oil.  While  serving  as  industrial  chemist  to  a  firm 
in  Manchester,  England,  his  attention  was  called  by 
Lord  Playfair  to  a  thick,  viscous  liquid  which  was 
oozing  from  a  coal  mine  at  Alfreton  in  Derbyshire. 
Young  found  it  to  be  crude  petroleum  and  succeeded 
in  distilling  paraffin  (illuminating  oil)  from  it.  He 
left  Manchester,  built  a  small  refinery  near  the 
mine  and  began  producing  illuminating  oil  which 
was  then  the  only  commercial  use  made  of  petrole- 

101 


THE  PETROLEUM  INDUSTRY 

um.  At  the  end  of  two  years  his  supply  of  crude  oil 
failed,  but  in  that  time  he  had  perfected  his  refining 
process  and  in  1850  took  out  his  famous  patent  for 
the  distillation  of  paraffin  (illuminating  oil)  from 
petroleum.  Young's  discovery  of  the  refining  proc- 
ess in  England  compares  in  importance  with 
Drake's  drilling  the  first  oil  well  in  America. 

January  1,  1921  there  were  415  refineries  in 
the  United  States  with  a  combined  capacity  of 
1,888,000  barrels  of  crude  oil  a  day.  In  1920  the 
United  States  produced  443,000,000  barrels  of  crude 
oil  within  its  own  borders  and,  in  addition  to  re- 
fining its  own  crude,  refined  61,000,000  barrels  of 
crude  oil  and  2,000,000  barrels  of  "tops"  from  Mex- 
ico. The  total  oil  available  for  refining  in  1920  was 
therefore  about  506,000,000  barrels,  or  an  average 
of  1,386,000  barrels  a  day.  This  gives  an  excess  of 
502,000  barrels  of  daily  refining  capacity  over  the 
daily  production.  This  excess  capacity  is  not  evenly 
distributed  over  the  United  States  however,  some 
districts  being  over-built  while  others  are  under- 
built— with  the  same  effect  in  each  instance  that 
would  follow  similar  conditions  in  any  other  indus- 
try. 

102 


THE  PETROLEUM  INDUSTRY 

Texas  has  the  most  refineries,  70,  with  a  daily 
combined  capacity  of  330,000  barrels;  Oklahoma 
comes  next  with  68  refineries  and  248,000  barrels 
capacity;  then  Pennsylvania  with  51  and  116,000 
barrels  and  California  with  39  and  312,000  barrels. 
While  New  Jersey  has  but  7  refineries  they  have  a 
daily  capacity  of  215,000  barrels. 

It  has  been  estimated  that  in  1919  the  refiner- 
ies of  the  Standard  Oil  "group"  consumed  over  51 
per  cent  of  the  crude  oil  which  was  refined  in  the 
United  States  that  year.  The  "independent"  re- 
fining companies,  each  of  which  consumed  over 
1,000,000  barrels  of  crude  oil  in  1919  were: 

American  Oilfields  Company 
American  Petroleum  Company 
Cosden  &  Company 
General  Petroleum  Corporation 
Gulf  Refining  Company 
Indiana  Refining  Company 
Midwest  Refining  Company 
National  Refining  Company 
Ohio  Cities  Gas  Company 
Roxana   Petroleum   Company 
Shaffer  Oil  &  Refining  Company 
Sinclair  Refining  Company 
Sun  Company 
Texas  Company 
Tidewater  Oil  Company 
Union  Oil  Co.  of  California 
103 


THE  PETROLEUM  INDUSTRY 

The  16  independents  listed  above  consumed,  in 
1919,  over  31  per  cent  of  the  crude  oil  refined. 

As  the  Standard  Oil  group  and  the  16  independ- 
ents together  consumed  about  83  per  cent  of  the 
crude  oir  refined  in  the  United  States  in  1919  it  is 
apparent  that  the  bulk  of  the  refining  business  in 
the  United  States  is  in  the  hands  of  corporations 
with  large  finar  ial  resources. 

It  is  equally  obvious  that  the  hope  of  the  small 
refiner  lies  in  the  direction  of  availing  himself  of 
those  outside  sources  of  service  which  will  put  him 
on  a  competitive  basis  with  the  large  refiners. 

No  story  of  the  petroleum  industry  would  be 
either  complete  or  just  that  did  not  give  full  credit 
for  the  splendid  work  of  the  United  States  Geologi- 
cal Survey,  the  United  States  Bureau  of  Mines  and 
the  'Geological  Surveys  of  the  various  states,  as  well 
as  tHe  work  that  has  been  done  by  many  of  our  uni- 
versities. The  American  Petroleum  Institute,  or- 
ganized in  1919,  recently  created  the  department  of 
Technical  Research  and  Dr.  Van  H.  Manning,  for 
years  Director  of  the  United  States  Bureau  of 
Mines,  resigned  to  accept  the  position  of  Director  of 
this  work  for  the  Institute. 

The  Bureau  of  Mines  was  established  in  1910 
and  outside  of  Washington,  D.  C.,  there  are  10  "sta- 

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3 


THE  PETROLEUM  INDUSTRY 

tions"  scattered  throughout  the  United  States, 
each  station  specializing  in  some  department  of  the 
mining  industry.  In  1917  the  Bartlesville  (Okla- 
homa) station  was  established. 

The  work  of  this  station  is  confined  exclusive- 
ly to  oil  and  gas.  Their  chemists  and  technologists 
are  working  along  the  lines  of  improvements  in  the 
drilling  and  casing  of  wells,  causes  of  water  trou- 
bles and  their  abatement,  capacities  and  character- 
istics of  oil  and  gas  sands,  losses  of  oil  in  storage, 
prevention  of  v/aste  at  refineries,  etc.  Their  field 
investigations  are  combined  with  laboratory  re- 
search work  and  cover  every  b^ranch  of  the  industry 
in  every  part  of  the  country.  The  importance  and 
value  to  the  petroleum  industry  of  the  work  of  the 
Bartlesville  station  can  be  better  appreciated  by  a 
few  specific  instances  of  money  saved,  and  what  it 
cost  to  save  it: 

"Walters  Field,  Oklahoma,  1919.— Cost  of  Wal- 
ters work,  six  months  time  of  two  men,  and  field  ex- 
penses, $2,500. 

Five  wells  drilled  at  recommendations  of  the 
Bureau  of  Mines  by  one  company  on  lands  hereto- 
fore thought  unproductive  yielded  an  initial  daily 
production  of  600  bbls. 

105 


THE  PETROLEUM  INDUSTRY 

Production  first  month,  approximately  2,000 
bbls. 

Value  of  oil  first  month,  $42,000. 

Hewitt  Field,  Oklahoma,  1920. — In  addition  to 
solving  innumei'able  operating  proKems,  the  Bureau 
of  Mines,  through  its  recommendations: 

(1)  Saved  one  operator  casing  worth  $5,500 
by  advice  on  water  problems  in  his  well. 

(2)  Enabled  operator  to  save  7i/^  million  feet 
of  gas  per  day  and  produce  350  barrels  of  clean  oil 
per  day  from  the  same  well. 

(3)  Caused  operator  to  discover  deeper  sand, 
good  for  200  barrels,  on  one  property. 

(4)  Raised  settled  production  150  barrels  per 
day  on  one  40-acre  lease  by  proper  handling  of  wells. 

In  addition,  drilling  against  the  advice  of  Bu- 
reau of  Mines  engineers  cost  operators  a  total  of  40 
dry  holes  worth  $250,000. 

Cost  of  investigation:  Two  men,  six  months, 
and  field  expenses,  $4,300. 

Cushing  Field,  Oklahoma,  1917j — Total  year's 
appropriation  for  supervisory  work  of  Indian  lands, 
$17,500. 

Actual  cost  of  this  particular  piece  of  work  for 
shutting  off  bottom  water  in  oil  wells:     Salary  of 

106 


THE  PETROLEUM  INDUSTRY 

one  man,  six  months,  $1,250 ;   expenses,  six  months, 
$720;  total  cost  of  this  job,  $1,970. 

The  Bureau  engineers  demonstrated  the  possi- 
bilities of  shutting  off  bottom  water  by  the  use  of 
cement.  Operators  co-operated,  and  figures  collect- 
ed by  B.  H.  Scott  show  an  increase  in  oil  production 
resulting  from  this  work  of  4,304  barrels  per  day. 

Value  of  oil  estimated  as  worth  4,304  x  365 
days  X  $2.50  per  barrel  (field  price)  equals  $3,^27,- 
400  first  year.  Production  will  not  continue  at  same 
rate,  but  if  savings  are  decreased  by  50  per  cent 
they  still  amounted  to  almost  $^2,000,000  in  one  year. 

Mid-Continent. — Installation  of  "tail  absorbers" 
on  six  casinghead  gasoline  plants  increased  output 
600,000  gallons  during  1920.  At  least  12  other 
plants  have  installed  or  are  installing  these  absorb- 
ers, and  the  value  of  gasoline  shown  below  indi- 
cates the  value  of  a  product  which  would  have  oth- 
erwise gone  to  waste  and  from  six  plants  only,  and 
does  not  indicate  the  value  of  this  equipment  for 
future  years. 

Cost  of  this  work,  about  $3,000. 

Value  of  gasoline  saved  during  1920  in  the  six 
plants  of  which  record  is  available,  $125,000. 

107 


THE  PETROLEUM  INDUSTRY 

Wyoming. — In  Lance  Creek  field,  in  Wyoming, 
the  Bureau  of  Mines  engineers  repaired  one  weU 
which  had  been  given  up  by  the  owners.  A  compli- 
cated repair  job  obtained  the  following  results  on 
the  one  well: 

Initial  daily  production  after  being  repaired, 
700  barrels. 

Value  of  first  month's  production,  $42,180. 

Actual  cost  of  the  work  not  more  than  $2,000. 

Oklahoma. — A  method  was  developed  in  the 
laboratory  at  the  Bartlesville  station  for  treating 
casinghead  gasoline  so  that  it  will  pass  the  ''doctor 
test"  and  thus  render  it  available  for  export.  The 
process  is  now  being  installed  by  at  least  two  cotm- 
panies  in  Oklahoma,  one  company  reporting  that 
they  can  obtain  3  cents  more  per  gallon  for  their 
gasoline  than  would  otherwise  be  possible.  This 
company  has  a  production  of  250,000  gallons  month- 
ly, which  will  mean  an  increased  income  of  approxi- 
mately $7,500  per  month." 
— From  "Oil  and  Gas  Journal,"  Tulsa,  Oklahoma — 

issue  of  February  4,  1921. 

Because  of  enormous  wastes  frequently  found 
in  the  producing  and  refining  ends  of  many  oil  com- 
panies, as  illustrated  by  the  work  of  the  Bartlesville 

108 


THE  PETROLEUM  INDUSTRY 

station,  as  well  as  enormous  wastes  resulting  from 
mismanagement,  especially  of  most  oil  companies 
launched  by  novices,  the  business  or  profession  of 
Petroleum  Engineering  has  been  evolved  during  re- 
cent years.  The  field  covered  by  commercial  Petro- 
leum Engineering  is  broader  however  than  that  of 
the  Bureau  of  Mines  as  it  includes  examinations  of 
oil  and  gas  properties,  appraisals  and  consultations 
on  all  phases  of  the  industry  and  in  many  instances 
includes  the  actual  management  of  properties  for 
the  owners,  whether  individuals  or  corporations. 
Obviously  these  phases  of  the  work  could  not 
be  included  in  the  field  covered  by  either  the  Bureau 
of  Mines  or  the  Geological  Surveys  of  either  the 
national  government  or  the  various  states.  That 
the  work  of  the  Petroleum  Engineer  is  extremely 
profitable  to  his  clients  owning  oil  or  gas  properties 
is  very  apparent — while  at  the  same  time  the  Engi- 
neer becomes  thoroughly  familiar  with  every  detail 
of  scores  of  properties  operating  under  almost 
every  different  condition  possible,  thereby  broaden- 
ing his  experience  and  securing  a  training  far  more 
valuable  than  that  of  any  group  of  oil  men  whose 
efforts  are  confined  to  handling  the  affairs  of  one 
company. 

109 


CHAPTER  VII 
MARKETING 

Marketing  of  petroleum  products  begins  at  the 
hundreds  of  refineries  in  the  United  States  and  ends 
in  millions  of  homes  and  businesses  in  every  country 
on  the  globe. 

Regardless  of  the  product,  it  must  reach  the 
ultimate  consumer  in  a  can,  car,  carboy,  carton,  bot- 
tle, box,  drum  or  other  container  that  is  acceptable 
to  the  consumer  and  at  a  fair  price.  When  seeking 
world  markets  the  racial  characteristics  of  each  peo- 
ple served,  their  stage  of  development,  their  trans- 
portation facilities  and  a  thousand  and  one  other 
things — even  to  the  color  of  the  wrapping  paper 
on  the  package — must  be  known  in  advance. 

The  electric  light  forced  kerosene  to  hunt  new 
markets — and  among  the  numerous  manufacturers 
of  kerosene,  one  developed  a  market  in  China  by 
selling  "coal  oil"  lamps  to  the  natives  at  a  price  said 
to  have  been  less  than  cost. 


110 


THE  PETROLEUM  INDUSTRY 

Thirty  years  ago,  with  no  automobiles,  it  was  a 
problem  to  find  a  market  for  gasoline — the  internal 
combustion  engine  was  the  answer.  And  without 
gasoline  no  one  can  say  how  long  the  coming  of  the 
automobile,  motor  truck,  farm  tractor  and  aeroplane 
would  have  been  delayed. 

The  growing  demand  for  gasoline  has  been  be- 
yond the  capacity  of  new  oil  wells  to  supply — the 
casinghead  gasoline  plant  and  the  "cracking"  proc- 
ess in  refining  are  the  answers. 

Through  60  years  the  petroleum  industry  has 
been  a  "see-saw"  between  a  product  looking  for  a 
market  and  a  market  looking  for  more  of  the  pro- 
duct. "Sufficient  unto  the  generation  is  the  in- 
ventive genius  thereof." 

The  United  States  is  producing  annually  about 
two-thirds  of  the  crude  oil  of  the  world  and  consum- 
ing it  in  about  the  same  proportion.  The  value  of 
the  crude  oil  produced  in  the  United  States  in  1920 
has  been  estimated  at  $i;360,000,000— the  value  of 
the  refined  products  made  from  it  was  about  twice 
that  amount.  Practically  every  industry  in  the 
United  States,  every  business,  every  profession, 
every  home,  every  individual  is  reached  by  one  or 
more  of  the  products  of  petroleum. 

Ill 


THE  PETROLEUM  INDUSTRY 

This  gigantic  marketing  organization  that 
reaches  into  probably  20,000,000  homes  in  the 
United  States  and  other  millions  in  other  lands  is 
both  the  answer  to  and  the  call  for  more  crude  oil. 

As  there  are  today  in  the  United  States  more 
than  8,500,000  motor  vehicles  the  distribution  of 
the  great  bulk  of  petroleum  products  has  naturally 
become  a  part  of  the  "service"  end  of  the  automo- 
bile industry — hence  the  filling  station,  the  garage, 
the  supply  store,  and  the  car  and  truck  agency,  each 
with  its  "line"  of  gasoline,  lubricating  oils  and 
greases. 

The  filling  station  in  our  large  cities  has  be- 
come architecturally  "a  thing  of  beauty" — and  an- 
other evidence  of  the  wonderful  changes  that  the 
"motorizing  of  the  world"  is  working  in  our  lives. 

In  one  form  or  another  crude  oil  is  found  in 
hundreds  of  articles  dispensed  in  our  drug  stores. 
The  comer  grocery  sells  the  lamp  and  the  oil  as  well 
as  the  paraffin  "wax"  candle  and  the  cake  of  paraf- 
fin for  either  ironing  or  canning  day. 

Except  coal  gas  and  coke  gas,  all  of  our  illumin- 
ating and  heating  gas  comes  either  directly  or  indi- 
rectly from  crude  oil,  so  the  problem  of  marketing 
its  gas  assulmes  large  proportions.    Gas  companies 

112 


THE  PETROLEUM  INDUSTRY 

are  classed  as  public  utilities  and  found  in  practic- 
ally every  city  in  the  land,  with  plant  investments 
aggregating  millions  of  dollars  and  ranking  with 
Electric  Light  and  Street  Car  Companiess. 

The  first  exportation  of  refined  oil,  40  barrels, 
was  made  in  1861  to  Antwerp,  Belgium.  Table  13 
shows  in  round  numbers  the  amount  of  petroleum 
and  petroleum  products  shipped  to  foreign  coun- 
tries in  1918.    The  principal  countries  to  which  these 

Table  13 — Exports  of  petroleum  products,  1918: 

Gallons  Value 

Crude  Qil  205,000,000  $  12,000,000 

Gasoline  and  Naptha  559,000,000  139,000,000 

Illuminating  Oil  491,000,000  50,000,000 
Lubricating  Oils  and 

Paraffin  257,000,000  75,000,000 

Gas  and  Fuel  Oils  1,200,000,000  66,000,000 

Residuum  244,000  14,000 


Total  2,712,244,000     $342,014,000 

products  were  shipped  were:  Canada,  Mexico,  Pan- 
ama, Cuba,  Chili,  Argentine,  Brazil,  West  Indies, 
United  Kingdom,  France,  Spain,  Netherlands,  Italy, 

113 


THE  PETROLEUM  INDUSTRY 

Sweden,  Denmark,  Philippines,  Dutch  East  Indies, 
China,  Japan,  British  India,  British  Africa,  British 
Oceanica — and  from  there  to  the  "four  corners  of 
the  world." 

As  the  Standard  Oil  Company  developed,  it  dis- 
tributed its  transporting-,  refining  and  marketing 
among  its  different  companies.  Some  were  strict- 
ly pipe  line  companies,  others  strictly  refiners,  while 
others  combined  these  activities  with  marketing; 
but  as  a  great  organization  it  was  essentially  not  a 
producer  of  crude  oil. 

The  Standard  Oil  Company  of  Ohio  was  organ- 
ized in  1870  under  the  laws  of  Ohio  and  was  the  orig- 
inal Standard  Oil  Company.  The  Cleveland  Refining 
Works  is  probably  the  oldest  complete  refining  plant 
in  the  Unfted  States  and  is  the  pioneer  for  producing 
lubricating  oils  and  paraffin  products.  From  this 
original  company  there  developed  the  giant  organi- 
zation which  was  dissolved  by  order  of  the  United 
States  Supreme  Court  in  1911.  The  companies 
which  made  up  the  old  organization  are  today  re- 
ferred to,  for  convenience  only,  as  the  Standard  Oil 
"group" — and  because,  for  a  generation,  they  repre- 
sented the  greater  part  of  the  American  petroleum 
industry,  their  capitalization  and  assets  are  shown 

114 


Table  14 — The  Standard  Oil  group. 

PRODUCING  COMPANIES 

Capitalization        Assets  Year 

Ohio   Oil   Company    $15,000,000     $81,710,056  1919 

Prairie  Oil  and  Gas  Company  20,000,000       117,955,760  1918 

South    Penn    Oil    Company.  .   20,000,000          36,283,022  1919 

Washington  Oil  Company   .  .         100,000              201,048  1919 

Total     $55,100,000     $236,150,386 

PIPE   LINES  AND   CARRIERS 

Buckeye  Pipe  Line  Co.    ...$   10,000,000     $  26,273,668  1919 

Crescent  Pipe  Line  Co.   ...     33,000,000           3,469,660  1919 

Cumberland    Pipe   Line    Co.       1,500,000           4,167,684  1919 

Eureka   Pipe  Line  Co 5,000,000         12,276,317  1919 

Illinois  Pipe  Line  Co 20,000,000         22,949,719  1919 

Indiana  Pipe  Line  Co 5,000,000         10,855,349  1919 

National  Transit  Co 6,362,500         17,005,844  1919 

New  York  Transit  Co 5,000,000         13,407,102  1919 

Northern   Pipe  Line  Co.    ..       4,000,000           6,506,420  1919 

Prairie  Pipe  Line  Co 27,000,000         55,497,366  1918 

Southern  Pipe  Line  Co.   ...     10,000,000         14,001,521  1919 

South  West  Penn  P.  L.  Co.       3,500,000           5,484,218  1919 

Union  Tank  Car  Co 24,000,000         24,521,815  1918 

Total $124,362,500     $216,416,683 

REFINERS  AND  MARKETERS 

Anglo-American    $  14,520,000       $      55,682,640  1918 

Atlantic   Refining  Co.   .   .     70,000,000              95,400,893  1919 
Borne-Scrymser    Co.    ...           200,000      (not  available) 

Chesebrough   Mfg.    Co.    .       2,500,000                3,508,433  1919 

Continental  Oil  Co 12,000,000               13,867,690  1919 

Galena-Signal  Oil   Co.    .  .      32,000,000              30,723,508  1919 

Solar   Refining   Co 2,000,000                  7,906,206  1919 

S.  O.  of  California    .    .    .  100,000,000            174,317,551  1919 

S.  0.  of  Indiana    100,000,000            154,672,024  1919 

S.  O.  of  Kansas 2,000,000                9,640,017  1919 

S.  O.  of  Kentucky    .    .    .       6,000,000              16,950,785  1919 

S.  O.  of  Nebraska   .    .    .        5,000,000                5,344,933  1919 

S.  O.  of  New    Jersey    . .   300,000,000            853,360,598  1919 

S.  O.  of  New    York     . . .     75,000,000            299,592,590  1919 

S.  O.  of  Ohio 21,000,000              28,203,897  1919 

Swan   and   Finch    2,000,000                2,584,593  1918 

Vacuum  Oil  Company  .  .     15,000,000              75,619,536  1919 

Total $759,220,000       $1,827,375,894 

Total    assets   $2,279,942,963 

Total   capitalization 938,Q82,500 

Excess  of  assets  over  capitalization.  .$1,341,260,463 

115 


THE  PETROLEUM  INDUSTRY 

in  Table  14.  The  capitalization  shown  is  "author- 
ized" capitalization,  although  in  many  instances  the 
capital  stock  actually  outstanding  is  substantially 
less  than  the  authorized  amount — for  example,  the 
authorized  amount  for  the  Standard  Oil  of  Indiana 
is  $100,000,000,  while  in  1919  only  $30,000,000  was 
outstanding  as  against  over  $154,000,000  of  assets. 
The  grouping  into  the  three  classes  is  only  roughly 
accurate,  as  for  example,  the  Standard  Oil  of  Cali- 
fornia, while  classified  as  a  refiner  and  marketer,  is 
also  a  large  producer  as  well  as  a  transporter  of 
crude  oil. 

The  enormous  assets  of  the  Standard  Oil  of 
New  Jersey  are  largely  due  to  the  great  number  of 
its  subsidiary  companies,  not  only  in  this  country 
but  in  many  foreign  lands.  Among  its  subsidiaries 
in  the  United  States  are  the  Standard  Oil  of  Louis- 
iana, the  Carter  Oil  Co.  and  the  Humble  Oil  and  Re- 
fining Company.  These  companies  are  producers 
and  control  over  2,500,000  acres  of  oil  and  gas 
leases  in  the  Appalachian,  Mid  Continent  and  Gulf 
Coast  regions  with  a  developed  production  of  about 
75,000  barrels  a  day,  as  of  June  1,  1920. 

In  Mexico  it  operates  through  the  Transconti- 
nental Petroleum  Company  which  is  a  large  pro- 

116 


THE  PETROLEUM  INDUSTRY 

ducer.  In  Peru,  South  America,  it  is  connected  with 
the  International  Petroleum  Company,  also  pro- 
ducers. In  the  West  Indies,  Central  and  South 
America  its  marketing  is  done  through  the  Standard 
Oil  Company  of  Brazil  and  the  West  India  Oil  Com- 
pany. Refining  is  done  by  the  West  India  Refining 
Company. 

The  European  marketing  is  done  through  the 
American  Petroleum  Co.  which  distributes  Stand- 
ard Oil  products  in  Holland  and  Belgium;  the  Bed- 
ford Petroleum  Co.  distributes  in  France,  Belgium, 
Holland,  Spain,  Italy  and  Switzerland;  the  Det 
Danske  Petroleums  Atkieskab  in  Norway,  Sweden, 
Denmark  and  Iceland ;  the  Roumania-Americano  in 
Roumania ;  the  Societa  Italo-Americana  Pel  Petrolio 
in  Italy,  Algiers,  Tunis,  Malta  and  Tripoli.  The 
other  16  refining  and  marketing  companies  ii>- 
cluded  in  this  group,  distribute  their  products  into 
every  corner  of  this  country  and  into  every  foreign 
land  where  petroleum  products  are  used. 

The  "Sales  Organizations"  that  have  been  built 
up,  especially  in  recent  years,  by  all  of  the  distribu- 
tors of  refined  products — and  there  are  hundreds  of 
them — are  marvels  of  effectiveness  in  not  only  sup- 
plying the  demand  but  in  creating  demand  in  new 

117 


THE  PETROLEUM  INDUSTRY 

fields.  Probably  no  other  industry  is  so  thoroughly 
organized  today  in  the  matter  of  a  world-wide  dis- 
tribution of  so  broad  a  line  of  products. 

By  confining  its  early  efforts  largely  to  pipe 
lines,  refining  and  marketing  the  old  Standard  Oil 
Company  earned  large  profits  which  increased  with 
the  growth  of  the  industry.  Up  to  the  time  of  its 
dissolution  in  1911  these  profits  were  distributed  to 
its  shareholders  with  extreme  liberality.  Since  that 
time  the  companies  referred  to  as  the  Standard  Oil 
group  have  followed  the  dividend  policy  of  the  orig- 
inal company,  and  from  1912  to  a  date  averaging 
June,  1920 — or  approximately  eight  and  a  half  years 
— these  companies,  listed  in  Table  14,  paid  to  their 
shareholders,  in  cash  dividends,  over  $750,000,000. 

In  addition  to  this  enormous  amount  paid  to 
the  shareholders  in  cash,  a  large  part  of  the  increase 
in  capitalization  of  these  companies  has  been 
through  the  payment  of  stock  dividends;  part  of  it 
has  cotme  from  allowing  the  old  shareholders  to  pur- 
chase additional  stock,  usually  at  par,  although  the 
market  price  has  usually  been  far  above  par;  the 
remainder  has  been  sold  to  the  public  at  the  market 
price. 

118 


THE  PETROLEUM  INDUSTRY 

The  profits  earned  by  these  companies  have 
been  enormous — and  the  management's  poHcy  to- 
ward the  shareholders  has  been  most  liberal  and 
satisfactory.  The  accusation  of  "watered  stock," 
often  made  and  always  true  with  get-rich-quick  pro- 
motions, certainly  does  not  apply  to  these  com- 
panies as  will  be  seen  by  referring  to  Table  14 :  from 
the  excess  of  total  assets  over  total  capitalization 
these  companies  could  pay  stock  dividends  aggre- 
gating One  Billion  Dollars  and  the  book  value  of 
their  stock  would  still  be  above  par. 

While  the  companies  listed  in  Table  14  would,  if 
combined,  make  the  largest  organization  in  the  pe- 
troleum industry,  many  large  so-called  "independ- 
ents" have  grown  up  in  recent  years  whose  produc- 
tion surpasses  that  of  any  member  of  the  so-called 
"group." 


119 


CHAPTER  VIII 
GAS  AND  GASOLINE 

Gas,  as  related  to  the  petroleum  industry,  is  of 
two  kinds :  artificial  and  natural.    The  artificial  gas 
manufactured  in  the  United  States  is  of  four  kinds : 
1 — Coal  gas 
2 — Coke  gas 

3 — Carburetted   water   gas 
4 — Oil  gas 
The  manufacture  of  neither  coal  gas  nor  coke 
gas  utilizes  petroleum,  hence  they  will  not  be  dis- 
cussed in  this  book. 

Carburetted  water  gas  is  derived  from  the 
treatment,  at  high  temperatures,  of  anthracite  coal 
into  the  vapor  of  which  while  passing  through  the 
carburetor,  gas  oil  or  fuel  oil  is  sprayed,  thereby 
adding  any  desired  heat  value  or  candle  power  to  the 
blue  water  gas. 

The  oil  gas  process  is  confined  largely  to  the 
Pacific  Coast  states  where  comparatively  cheap  oil 
and  expensive  coal  make  the  other  processes  less 


120 


THE  PETROLEUM  INDUSTRY 

feasible.  On  the  other  hand,  east  of  the  Rocky  Moun- 
tains where  coal  is  comparatively  cheap  and  oil  ex- 
pensive, the  coal,  coke  and  carburetted  water  gas 
processes  practically  monopolize  the  artificial  gas 
market.  Much  of  the  artificial  gas  manufactured  is 
utilized  at  the  plants  in  which  it  is  produced,  there- 
fore the  data  in  Table  15  represent  gas  sales,  not 
production. 

Table    15  —  Production   of  artificial   gas  in   the 
United  States,  1918 : 

Aver,  price 

per  1000 

Kind  Cubic  feet  Value         cu.  ft. 

Coal  gas  42,630,000,000     $  43,000,000     $1.01 

Water  gas       175,431,000,000       156,000,000         .90 

Oil  gas  14,100,000,000         13,000,000         .92 

Coke  gas         158,358,000,000         13,000,000         .09 

390,519,000,000     $225,000,000         .58 

At  the  end  of  1918  there  were  40,369  wells  pro- 
ducing natural  gas  in  the  United  States.  During 
1918  there  were  5,316  wells  drilled  for  gas,  of  which 
3,808  or  72  per  cent  came  in  gas  while  1,508  or  28 
per  cent  were  dry. 

The  total  production  of  natural  gas  (from  gas 
wells)  for  1918,  as  shown  in  Table  16,  amounted  to 

121 


THE  PETROLEUM  INDUSTRY 

721,000,000,000  (Seven  Hundred  and  Twenty  One 
Billion)  cubic  feet,  for  which  the  consumers  paid 
over  $153,000,000  or  about  21  cents  per  1,000  cubic 
feet. 

Of  both  artificial  gas  and  natural  gas  the  United 
States  consumed,  in  1918,  over  Oyie  T^^illion  One 
Hundred  and,  Eleven  Billion  cubic  feet,  for  which 
they  paid  $378,000,000  or  an  average  of  34  cents  per 
1,000  cubic  feet. 

In  order  to  ''see"  this  enormous  quantity  of  gas 
imagine  it  filling  a  pipe  12  inches  in  diameter  and 
267,000  miles  long. 

The  first  discovery  of  natural  gas  in  the  United 
States,  by  drilling,  resulted  from  the  drilling  of 
brine  wells  in  Ohio  and  West  Virginia  about  a  cent- 
ury ago.  Rufus  Stone,  of  McConnelsville,  in  the 
Morgan  salt  well  field,  accidentally  drilled  one  of  the 
early  natural  gas  wells  while  drilling  for  a  salt  well. 
He  was  disgusted  with  the  gas,  but  Captain  Henry 
Stull  showed  him  how  to  burn  it  to  evaporate  the 
salt  water  to  make  the  salt,  which  process  was  con- 
tinued for  many  years. 

The  first  commercial  use  of  natural  gas  for 
lighting  purposes  was  at  Fredonia,  New  York,  in 
1826.     About  a  hundred  lights  were  connected  up, 

122 


THE  PETROLEUM  INDUSTRY 


Table  16  —  Production  of  natural   (dry)   gas  in 
the  United  States,  1918 : 

Average  price 

in  cents  per 

Volume  in  1000  cu. 

State                  cubic  feet  Value     feet 

West    Virginia.. 265,160,917,000  $41,324,365  15.58 

Oklahoma    124,317,179,000  15,805,135  12.71 

Pennsylvania     ..123,813,358,000  38,608,883  31.18 

Ohio    61,261,069,000  24,234,741  39.55 

California    39,718,941,000  7,951,666  20.01 

Louisiana 36,094,132,000  4,912,235  13.60 

Kansas    27,824,641,000  6,640,781  23.86 

Texas    13,439,624,000  5,027,449  37.40 

New  York 8,460,583,000  5,673,13167.05 

Arkansas    5,294,663,000  575,115  10.86 

Illinois    4,473,018,000  620,949  13.88 

Wyoming   4,338,840,000  156,171     3.59 

Kentucky    3,022,439,000  665,843  22.03 

Tennessee     1,826,725,000  361,140  19.76 

Indiana     1,666,822,000  899,671  53.97 

Montana     177,039,000  62,148  35.10 

South   Dakota...          42,186,000  19,109  45.29 
Maryland,  Utah, 

Washington   .  .          25,916,000  2,700  10.41 

Missouri     22,120,000  5,548  25.08 

Colorado     10,103,000  2,575  25.48 

Alabama     4,600,000  1,890  41.08 

Oregon    2,200,000  550  25.00 

Iowa   1,758,000  245  13.93 

Michigan    1,173,000  1,045  89.08 

North  Dakota...               913,000  475  52.02 

721,000,959,000  153,553,560  21.29 
123 


THE  PETROLEUM  INDUSTRY 

the  consumers  paying  $1.50  per  light  per  year.  It 
was  not  until  1872  however  that  a  town  was  actually 
piped  for  natural  gas  for  domestic  use — and  by  a 
strange  coincidence  that  town  was  Titusville,  Pa. 
The  gas  was  delivered  through  a  two-inch  pipe  from 
the  Newton  well,  about  5  miles  north  of  Titusville. 
From  this  small  beginning  the  natural  (dry)  gas  in- 
dustry had  spread  up  to  1918  to  2,508,000  domestic 
consumers  who  used  271,000,000,000  cubic  feet, 
while  16,581  industrial  establishments  used  450,- 
000,000,000  cubic  feet. 

The  term  natural  gas  includes  both  dry  gas 
from  gas  wells  and  wet  gas  from  oil  wells,  although 
it  is  common  practice  to  call  dry  gas  natural  gas  and 
wet  gas  casinghead  gas. 

In  1917  the  United  States  spent  $142,000,000 
for  natural  (dry)  gas  for  heating  and  hghting  pur- 
poses and  the  same  year  there  was  extracted  from 
natural  (dry)  gas  $9,000,000  worth  of  casinghead 
gasoline,  making  a  total  of  $151,000,000  for  heat, 
light  and  power  from  natural  (dry)  gas.  The  heat- 
ing and  lighting  value  of  dry  gas  is  not  noticeably 
impaired  by  the  removal  of  the  gasoline  content. 

The  chemical  element,  Helium,  was  discovered 
by  the  astronomer  Lockyear  in  1869  while  making 

124 


THE  PETROLEUM  INDUSTRY 

same  investigations  in  connection  with  the  incandes- 
cent gaseous  atmosphere  of  the  sun  and  as  no  known 
element  in  the  earth  compared  with  it  he  numbered 
it  "D3"  and  called  it  Helium.  About  1890  Sir  Wil- 
liam Ramsey,  the  discoverer  of  Argon,  while  looking 
for  new  sources  from  which  to  obtain  it,  accidentally 
found  Helium,  the  first  time  it  was  known  to  exist 
on  the  earth.  Up  to  1917  probably  not  more  than 
100  cubic  feet  had  been  found,  the  price  being  $1,700 
a  cubic  foot.  Next  to  Hydrogen,  the  lightest  known 
gas  is  Helium,  but  while  Hydrogen  is  highly  in- 
flammable. Helium  so  far  as  is  known  cannot  be 
burned,  hence  it  makes  an  ideal  substance  for  dirigi- 
ble balloons.  Later  investigations  by  the  Bureau  of 
Mines  revealed  Helium  in  the  natural  (dry)  gas  of 
the  Mid  Continent  field  and  under  the  spur  of  the 
war  two  plants  to  obtain  Helium  from  natural  gas 
were  built  at  Fort  Worth,  Texas.  They  used  20,000,- 
000  cubic  feet  of  natural  gas  a  day  and  by  Septem- 
ber, 1918,  the  first  plant  was  producing  5,000  cubic 
feet  of  Helium  a  day  of  93  per  cent  purity.  A  plant 
is  now  under  construction  capable  of  producing  at 
least  50,000  cubic  feet  of  Helium  a  day — at  a  cost  of 
not  more  than  10  cents  a  cubic  foot. 

125 


THE  PETROLEUM  INDUSTRY 

Gasoline  is  derived  today  from  three  sources 
and  by  four  processes : 

Sources  Processes 

Crude  oil Complete  refinery 

Cracking  plant 

Dry  gas Absorption  plant 

Wet  gas Compression  plant 

The  manufacture  of  gasoline  by  the  complete 
refinery  and  by  the  cracking  process  were  described 
in  the  chapter  on  Refining,  but  as  gasoline  is  so  vital 
to  our  industrial  and  economic  life,  and  as  its  value 
is  almost  equal  to  that  of  all  other  petroleum  prod- 
ucts combined,  the  entire  subject  will  be  treated  in 
this  chapter. 

Gasoline  made  by  the  distillation  of  crude  oil  in 
straight  run  (complete)  refineries  is  called  straight 
run  gasoline  and  for  many  years  was  the  only  kind 
of  gasoline  manufactured.  Many  users  today  insist 
on  straight  run  gasoline  and  feel  that  other  kinds 
are  inferior  substitutes.  It  is  a  fact,  however,  that 
the  greater  part  of  the  gasoline  marketed  today  is 
blended,  and  this  is  especially  true  in  some  sections 
of  the  country.  Most  of  the  blended  gasolines  are 
preferable  to  the  straight  run  products  particularly 
if  the  added  part  is  casinghead  gasoline.     Blends 

126 


THE  PETROLEUM  INDUSTRY 

containing  casinghead  gasoline  contain  larger  per- 
centages of  low  boiling  (lighter)  fractions  than  do 
straight  run  gasolines  of  the  same  end  point,  and 
because  of  this  fact  possess  more  "kick,"  or  starting 
qualities,  making  them  particularly  desirable  for 
use  in  cold  weather. 

Table  17  —  Gasoline  produced  in  1917 : 

Process  Barrels 

Straight   run  54,000,000 

Cracked  9,000,000 

Compression  plants    (Wet)  4,024,000 

Absorption  plants   (Dry)  1,167,000 


Total  68,191,000 

Production  of  crude  oil : 

19K— 281,000,000  Barrels 

1920—443,000,000  Barrels— increase  57% 
Production  of  gasoline: 

1915—65,000,000  Barrels 

1920—128,000,000  Barrels — increase  95% 

Cracked  gasoline  is  manufactured  chiefly  by  re- 
fineries that  control  large  supplies  of  straight  run 
gasoline  and  casinghead  gasoline.  Cracked  gasoline 
is  usually  blended  with  casinghead  gasoline,  thereby 

127 


THE  PETROLEUM  INDUSTRY 

producing  a  product  equal  at  least  to  straight  run. 

Possibly  because  of  a  more  or  less  comimon  ori- 
gin millions  of  years  ago,  crude  oil  and  natural  gas 
have  a  striking  affinity  for  each  other.  While  con- 
fined in  the  oil  sands  under  heavy  pressure,  hun- 
dreds or  thousands  of  feet  below^  the  surface  of  the 
earth,  the  crude  oil  absorbed  most  of  the  gas  while 
the  gas  in  turn  absorbed  some  of  the  "lighter"  frac- 
tions (principally  gasoline)  of  the  crude  oil. 

When  the  drill  reaches  the  oil  sand  and  the 
pressure  is  released,  the  crude  oil  in  reaching  the 
surface  carries  with  it  more  or  less  of  the  gas,  de- 
pending upon  the  pressure.  When  the  crude  oil 
reaches  the  flow  tanks  the  gas  separates  from  the 
oil  and  escapes  into  the  air. 

Now  to  return  to  the  crude  oil  and  gas,  still  in 
the  sand :  while  a  large  portion  of  the  gas  was  ab- 
sorbed by  the  crude  oil,  as  just  described,  the  unab- 
sorbed  part  of  the  gas  absorbs  some  of  the  volatile 
fractions  of  the  crude  oil,  gasoline  being  the  most 
important.  Therefore  at  the  same  time  that  the  crude 
oil  and  gasi  flow  to  the  surface,  inside  the  tubing, 
the  unabsorbed  gas  containing  gasoline  vapor  flows 
to  the  surface  between  the  tubing  and  the  casing. 
For  years  this  has  been  wasting  into  the  air  at  the 

128 


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THE  PETROLEUM  INDUSTRY 

head  of  the  casing,  hence  called  "casinghead  gas". 
Millions  of  dollars  worth  of  gasoline,  that  might 
have  been  recovered  from  the  surface  of  flow  tanks 
and  from  the  heads  of  well  casings  have  for  years 
been  wasting  into  the  air,  and  only  in  recent  years 
have  casinghead  gasoline  plants  been  developed  that 
would  recover  this  "invisible  waste." 

The  difference  between  gasoline  made  from 
either  dry  gas  from  gas  wells  or  wet  gas  from  oil 
wells,  and  gasoline  made  from  crude  oil  is  due  to 
the  fact  that  while  crude  oil  is  still  in  the  ground 
the  gas  that  is  always  associated  with  it,  in  greater 
or  less  quantities,  absorbs  some  of  its  lighter  frac- 
tions, gasoline  being  the  most  important;  the  frac- 
tions remaining  in  the  crude  oil  are  heavier  than 
the  ones  that  are  absorbed  by  the  gas — and  as  the 
lighter-  the  fraction  from  which  gasoline  is  made  the 
greater  the  "kick"  when  used  in  your  automobile,  it 
naturally  follows  that  gasoline  made  from  either 
wet  gas  or  dry  gas  is  more  volatile  and  has  more 
"kick"  than  gasoline  made  from  crude  oil. 

Following  the  same  line  of  reasoning  dry  gas, 
not  having  been  in  contact  probably  for  centuries 
with  crude  oil,  is  "lean"  in  gasoline  vapors  and 
therefore  will  not  yield  as  much  gasoline  per  1,000 

129 


THE  PETROLEUM  INDUSTRY 

cubic  feet  as  wet  gas  which  remains  in  contact  with 
tihe  crude  oil. 

In  proof  of  these  obvious  facts  the  data  for 
1917  show  that  79,527,000,000  cubic  feet  of  wet 
gas  produced  168,000,000  gallons  of  gasoline  or  an 
average  of  2  gallons  and  one  pint  per  1,000  cubic 
feet,  while  349,760,000,000  cubic  feet  of  dry  gas 
produced  49,000,000  gallons  of  gasoline  or  a  little 
more  than  one  pint  to  the  1,000  cubic  feet. 

And  it  also  follows  that  cracked  gasoline  is 
heavier  than  straight  run,  because  the  first  distil- 
lation removes  the  greater  part,  and  practically  all 
of  the  lighter  part  of  gasoline  in  the  crude  oil.  The 
second  distillation  (cracking  process)  onust  natur- 
ally yield  a  heavier  gasoline. 

Therefore    gasolines    arranged    according    to 
their  volatility,  would  assume  the  following  order: 
1 — Casinghead  gasoline   (From  wet  gas) 
2 — Natural  gas  gasoline  (From  dry  gas) 
3 — Straight-run  gasoline  (From  crude  oil) 
4 — Cracked  gasoline  (From  gas  oil) 
Casinghead  gasoline  (made  from  either  wet  gas 
or  dry  gas)  is  too  rich,  while  cracked  gasoline  is  too 
lean  to  be  satisfactory  for  motor  vehicle  use.     For 
this  reason  a  blend  of  cracked  gasoline  with  casing- 

130 


THE  PETROLEUM  INDUSTRY 

head  gasoline  gives  a  product  equal  at  least  to 
straight  run — ^and  one  in  which  the  amount  of 
"kick"  desired  can  be  controlled  by  the  person  mak- 
ing the  blend. 

In  the  first  distillation  of  crude  oil,  crude  naph- 
tha is  the  first  fraction  to  vaporize,  and  wthen  this 
is  re-distilled  it  breaks  up  into  naphtha,  benzene 
and  gasoline.  Naphtha  however  lacks  the  low 
burning  constituents  essential  to  a  good  motor  fuel 
while  casinghead  gasoline  has  too  much — therefore 
a  blend  of  naphtha  and  casinghead  gasoline  makes  a 
high  quality  motor  fuel.  The  8,000,000  barrels  of 
casinghead  gasoline  made  in  1918  rendered  at  least 
an  equal  amount  of  naphtha  available  as  motor  fuel. 

There  are  at  present  two  processes  by  which 
gasoline  is  obtained  from  natural  gas : 

1 — Compression  and  refrigeration  process 
2 — Absorption  process 

When  air  is  "saturated"  with  water  vapor  and 
the  temperature  falls,  some  of  the  water  vapor 
changes  to  rain,  snow,  fog,  dew  or  hail — and  if  gas 
is  saturated  with  the  vapor  of  gasoline  and  the 
temperature  falls,  the  vapor  of  the  gasoline  changes 
to  liquid  gasoline. 

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When  air  is  placed  under  sufficient  pressure  the 
water  vapor  it  contains  changes  to  water — and  when 
gas  saturated  with  the  vapor  of  gasoline  is  placed 
under  sufficient  pressure  the  gasoline  vapor  it  con- 
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condensation  of  the  gasoline  to  liquid  gasoline; 
hence  this  process  is  called  the  "compression  and  re- 
frigeration" process,  and  the  plant  is  called  a  com- 
pression plant. 

The  first  gas  cdmpression  plants  were  built  in 
the  eastern  oil  fields  about  1905,  were  extremely 
simple  in  design  and  would  handle  about  300,000 
cubic  feet  of  gas  a  day,  yielding  4  to  6  gallons  of 
gasoline  per  1,000  cubic  feet  of  gas.  This  gave  a 
daily  output  of  1,200  to  1,800  gallons,  or  30  to  45 
barrels  of  gasoline. 

The  profitable  operation  of  the?"  present  type  of 
compression  plant  is  limited  to  wet  gas  containing 
not  less  than  three-fourths  of  a  gallon  of  gasoline 
to  1,000  cubic  feet  of  gas.  Therefore  all  wet  gas 
containing  less  than  this  amount,  as  well  as  all  dry 
gas,  little  of  which  ever  approaches  this  amount, 
are  excluded  from  treatment  by  the    compression 

133 


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135 


THE  PETROLEUM  INDUSTRY 

process  which  probably  does  not  recover  more  than 
half  of  the  total  gasoline  content  in  the  wet  gas. 

As  the  amount  of  dry  gas  (from  gas  wells) 
consumed  in  1918  amounted  to  721,000,000,000 
cubic  feet,  and  as  not  more  than  half  of  the  gasoline 
was  recovered  from  the  wet  gas  (by  the  compres- 
sion process),  it  is  obvious  that  there  was  a  "field" 
for  a  new  process — and  the  answer  was  the  ab- 
sorption process. 

This  consists  essentially  in  bringing  the  gas 
(containing  the  vapor  of  gasoline)  into  contact  with 
an  oil  heavier  than  gasoline.  The  oil  absorbs  the 
gasoline  which  is  then  separated  from  it  by  distilla- 
tion. This  process  may  be  varied  by  passing  the 
gas  through  naphtha  having  a  specific  gravity  of 
about  50  to  55  degrees  Beaume,  letting  the  naphtha 
absorb  enough  of  the  gasoline  to  produce  a  blended 
gasoline  of  the  desired  quality  for  commercial  use. 

Probably  the  first  large  scale  absorption  plant, 
working  under  high  pressure,  was  built  by  J.  M. 
Saybolt  at  Hastings,  West  Virginia  in  1913.  By 
this  process  the  gas  bubbles  up  through  a  heavy 
petroleum  distillate  at  high  pressure,  the  distillate 
absorbing  the  gasoline  vapor  from  the  gas.  This 
"mixture"  is  then  sent  to  steam  stills  where   the 

136 


Figure    49  —  Topping-    plant    for   removing    only    the    lighter 
fractions  from  the  crude  oil. 


Figure  50  —  Absorption  plant;   see  towers  on  next  page. 


Figure  51  —  Absorption  towers  of  plant  shown  in  Figure  50. 
For  extracting  the  gasoline  from  either  casinghead  (wet) 
gas  from  oil  wells,  or  from  natural  (dry)  gas  from  gas 
wells.  They  can  recover  as  small  an  amount  as  one  pint 
of  gasoline  in  1,000  cubic  feet  of  natural  gas. 


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Figure  53  —  Tiger  Mountain  gas  well ;  when  drilled  in  it 
made  22,000,000  cubic  feet  and  when  6  years  old  was  mak- 
ing 16,000,000  cubic  feet. 


THE  PETROLEUM  INDUSTRY 

gasoline  is  separated  from  the  distillate  which  is 
used  over  and  over  again. 

As  first  devised  the  absorption  plant  worked  at 
high  pressure  only,  but  as  improved  today  it  works 
at  all  pressures  and  vacuums  and  as  a  result  any 
gas,  wet  or  dry,  after  treatment  by  it  is  almost  "as 
dry  as  a  bone,"  so  far  as  containing  any  gasoline 
vapor  is  concerned. 

The  present  high  efficiency  of  the  absorption 
process  has  made  it  possible  to  recover  the  gasoline 
from  the  unliquified  vapors,  which  during  refining 
pass  from  the  still  through  the  cooling  tank  to  the 
storage  tank  from  which  for  years  they  have  been 
wasting  into  the  air. 

It  is  also  possible  to  recover  the  gasoline  from 
the  vapors  from  flow  tanks  and  storage  tanks  as 
well  as  the  residual  gases  from  casinghead  gasoline 
plants  working  by  the  compression  process. 

The  gas  from  gas  wells  under  high  pressure  is 
usually  lean  in  gasoline  content  because  at  the  high 
pressure  in  the  gas  sand  the  gasoline  is  too  dense  to 
escape  except  in  very  small  amounts.  As  the  well 
exhausts  itself  the  gas  grows  richer  in  the  gasoline 
vapor  that  it  carries. 

137 


THE  PETROLEUM  INDUSTRY 

Today  when  a  new  oil  well  or  gas  well  comes  in, 
one  of  the  early  duties  is  to  have  a  chemist  test  the 
gas  for  its  "gasoline  content".  If  the  producing  oil 
company  does  not  have  its  own  casinghead  gasoline 
plant  there  are  today,  in  almost  all  fields,  companies 
that  specialize  in  the  manufacture  of  casinghead 
gasoline  and  are  always  in  the  market  for  gas  from 
the  gas  it  is  necessary  that  the  owners  know  how 
the  gas  it  is  necessary  that  the  owners  know  how 
much  gasoline  it  contains. 

As  a  practical  illustration  of  one  kind  of  "waste 
of  invisible  profits"  that  prevailed  for  many  years  in 
the  oil  business :  the  "XYZ  Oil  Company"  brings  in 
a  300-barrel  well — crude  oil  is  $2.00  a  barrel — and 
their  income  is  $B00  a  day.  In  addition  to  the  crude 
oil,  their  well  is  running  3,000,000  cubic  feet  of  gas 
that  shows  on  test  that  it  contains  a  half -gallon  of 
gasoline  to  the  1,000  cubic  feet.  A  casinghead 
gasoline  plant  will  recover  1,500  gallons  (3,000  times 
V^  gallon)  of  gasoline  from  this  well.  At  a  whole- 
sale price  of  15  cents  a  gallon  the  company's  income 
from  gasolfne  sales  would  be  $225  (1,500  times  15 
cents)  a  day.  And  up  to  a  few  years  ago  the  XYZ 
Company  would  have  accepted  the  $600  a  day  for 
their  oil  and  never  have  known  of  the    "invisible 

138 


THE  PETROLEUM  INDUSTRY 

profits"  of  $225  a  day  that  were  wasting  away  into 
thin  air. 

That  this  "invisible  waste"  can  be  stopped,  and 
turned  into  profits  available  for  dividends,  is  due  to 
the  work  61  chemists  and  specialists — and  without 
work  ofl:his  kind  there  would  have  been  no  petro- 
leum industry,  in  the  sense  that  we  know  it  today. 


189 


CHAPTER  IX 
ASSETS  OF  THE  PETROLEUM  INDUSTRY 

On  August  27,  1859  there  was  just  one  oil  well 
in  the  United  States — since  that  time  about  500,000 
have  been  drilled,  of  which  258,600  were  rated  as 
producers  on  Oct.  31,  1920  as  shown  in  Table  6. 

The  statement  that  "more  money  has  been  put 
into  oil  than  has  ever  been  gotten  out  of  it"  is  not 
true  of  the  industry  as  a  whole.  Numerous  in- 
stances could  be  cited  however  of  individual  com- 
panies that  did  put  more  money  into  oil  than  they 
ever  got  out — but  this  is  equally  true  of  every  other 
business  in  the  land. 

It  is  probably  true  that  if  it  were  possible  to 
separate  the  producing  end  of  the  oil  business  from 
the  remainder,  and  charge  against  the  producing 
end  the  cost  of  drilling  all  of  the  wells,  including 
the  dry  holes,  ayid  all  of  the  money  tvasted  by  all  of 
the  get-rich-quick  oil  promotions  that  have  been 
floated,  the  total  would  be  greater  than  the  value  of 
all  of  the  crude  oil,  at  the  surface  of  the  ground  at 


UO 


THE  PETROLEUM  INDUSTRY 

the  market  price  when  produced.  Within  the  last 
few  years  however  the  great  improvements  in  ex- 
ploration work,  in  the  location  of  test  wells,  in  the 
proper  casing  of  wells  to  prevent  water  encroach- 
ment into  oil  and  gas  sands,  in  the  discovery  of 
deeper  sands,  in  the  proper  pumping  of  wells,  etc. 
have  placed  the  producing  end  of  the  oil  business 
upon  a  very  different  basis  than  when  the  old 
"rule-of-thumb"  methods  prevailed. 

The  transporting,  refining  and  marketing  ends 
of  the  business  have  not  had  to  carry  the  stupen- 
dous burdens  that  have  been  loaded  upon  the  shoul- 
ders of  the  producing  end.  In  electrical  language 
"it  isn't  the  load,  but  the  overload  that  destroys" — 
and  this  is  true  of  the  producing  end  of  the  oil 
business.  Relieved  of  the  burden  of  crooked  pro- 
motions and  the  expensive  mistakes  of  novices  who 
never  belonged  in  the  business,  the  producing  end 
of  the  petroleum  industry  would  show  handsome 
profits  as  is  evidenced  by  the  hundreds  of  well- 
managed,  highly  successful  producing  oil  com- 
panies today. 

The  transporting  end  of  the  business  has  been 
extremely  profitable.  The  refining  business  has  been 
profitable  when  in  the  hands  of  men  whose  techni- 

141 


THE  PETROLEUM  INDUSTRY 

cal  training  and  practical  experience  qualified  them 
to  operate  such  plants.  "Isolated'"  refineries  (those 
without  fixed  supplies  of  crude  oil  or  dependable 
markets  for  refined  products — and  most  of  the  "pro- 
moted" refineries  have  been  of  this  kind)  have  us- 
ually fallen  into  the  hands  of  other  refineries  or 
were  re-organized  by  practical  oil  people — and  put 
on  a  "de-hydrated"  basis. 

Many  refineries  either  own  outright  or  control 
the  policy  of  chains  of  distributing  stations,  there- 
by safeguarding  the  market  for  their  products  as 
well  as  safeguarding  their  profits. 

It  is  absolutely  impossible  to  secure  any  re- 
liable statistics  as  to  the  cost  of  the  early  develop- 
ment of  the  petroleum  industry.  The  industry  had 
to  be  created — there  were  no  established  stand- 
ards to  guide  these  oil  pioneers  in  drilling  wells,  or 
casing  them,  or  taking  proper  care  of  them,  or 
building  refineries,  or  operating  them  economically, 
to  say  nothing  of  frequent  chaotic  marketing  con- 
ditions. All  of  the  vast  machinery  of  the  industry 
had  to  be  built,  and  the  market  had  to  be  developed 
with  the  growing  industry.  Mistakes  were  made  in 
every  end  of  the  industry — much  money  was  wast- 
ed— much  effort  was  wasted — and  it  would  serve  no 

142 


THE  PETROLEUM  INDUSTRY 

real  purpose  to  know  how  much.  This  one  fact  re- 
mains: that  from  it  all  has  emerged  the  petroleum 
industry  as  we  know  it  today — and  measured  in 
terms,  not  of  cost,  hut  of  service  to  mmikind,  it  is 
amply  worth  the  price. 

Disregarding  capitalization,  and  considering 
only  the  "physical  assets"  of  the  four  departments 
of  the  industry,  a  comparatively  close  estimate  can 
be  made  of  its  "present  worth" — and  this,  compared 
with  an  estimate  of  the  market  price  of  the  refined 
products  as  represented  by  sales,  establishes  a 
working  basis  from  which  some  general  conclusions 
may  be  drawn. 

Most  production  is  bought  and  sold  by  one  or 
the  other  of  two  widely  different  standards: — 
1 — On  a  "barrel-per-day"  basis 
2 — On  an  appraisal  made  by  a  firm  of  Pe- 
troleum Engineers. 

The  principle  involved  in  the  first  method  is  a 
unit  price  per  barrel  multiplied  by  the  number  of 
barrels  per  day.  For  example,  the  price  agreed  on 
is  $1,500  per  barrel  and  the  well  is  producing  10 
barrels  per  day :  the  market  price  of  the  well  would 
be  10  times  $1,500  or  $15,000.  The  price  per  bar- 
rel varies  with  the  price  of  crude  oil,  the  age  of  the 

143 


THE  PETROLEUM  INDUSTRY 

well,  the  kind  of  oil  sand,  the  number  of  oil  sands  in 
the  pool,  and  other  factors,  an  accurate  estimate  of 
which  can  he  made  by  experienced  oil  men  only. 

Especially  in  transactions  involving  larger 
properties  the  method  of  a  complete  appraisal  by  a 
firm  of  Petroleum  Engineers  is  rapidly  replacing  the 
first  method  which,  at  the  best,  is  little  better  than 
a  "rule-of-thumb"  way  of  arriving  at  a  value. 

The  American  Petroleum  Institute  estimated 
that  the  average  daily  production  for  the  United 
States  for  the  week  ending  April  30,  1921  was  1,- 
297,940  barrels— multiplying  this  by  $2,000  (which 
is  probably  the  average  price  per  barrel  based  on 
conditions  early  in  1921)  would  give  an  approxi- 
mate value  of  $2,500,000,000  for  the  present  pro- 
duction of  the  United  States. 

This  estimate  is  undoubtedly  less  than  the  real 
value,  because  the  buying  price  of  a  well  contem- 
plates a  profit  on  the  transaction,  and  most  wells 
are  bought  on  the  basis  of  returning  the  purchase 
price  in  from  3  to  4  years.  Conceding  that  the  real 
value  of  the  wells  is  greater  than  that  indicated  by 
the  temporarily  low  prices  of  crude  ruling  through 
the  first  half  of  1921,  and  that  the  "profit"  margin 
in  the  purchase  price  is  a  part  of  the  real  value  of 

144 


THE  PETROLEUM  INDUSTRY 

the  wells,  a  price  of  $3,500,000,000  would  probably 
represent  a  fair  value. 

According  to  estimates  made  by  the  United 
States  Bureau  of  Mines,  there  were  in  the  United 
States  in  1920  about  34,000  miles  of  main  trunk  pipe 
line  and  about  11,500  miles  of  gathering  lines.  At 
the  time  of  construction  the  average  cost  per  mile, 
based  on  8-inch  pipe,  was  about  $6,500.  The  re- 
placement cost  today  of  the  trunk  lines  and  the 
gathering  lines  would  be  about  $400,000,000.  The 
cost  of  the  average  pumping  station,  when  built, 
ranged  from  $130,000  to  $250,000.  The  replace- 
ment cost  today  would  be  substantially  more.  A 
total  present  valuation  of  $500,000,000  for  the 
transportation  system  would  be  conservative. 

On  January  1,  1921  there  were  415  refineries  in 
the  United  States  with  a  total  daily  capacity  of 
1,888,800  barrels — and  44  refineries  were  under  con- 
struction. Included  with  these  refineries  are  in 
many  instances  valuable  wharf  and  terminal  proper- 
ties, factories  for  the  production  of  tin  containers 
for  the  refined  products,  factories  for  making  steel 
and  wooden  barrels,  foundries,  machine  shops,  tank 
car  repair  shops,  etc.,  a  total  valuation  for  all  of 
which  would  probably  not  fall  short  of  $2,000,000- 
000  based  on  the  present  replacement  costs. 

145 


THE  PETROLEUM  INDUSTRY 

On  January  1,  1921  there  were  220  tankers  on 
the  high  seas  flying  the  American  flag  and  105 
building,  giving  us  a  fleet  of  325  Aanerican-owned 
tankers,  valued  conservatively  at  over  $250,000,000. 
In  addition  there  were  numerous  tugs  and  lighters 
for  harbor  use.  The  tank  cars  in  use  in  the  United 
States  at  the  beginning  of  1921  were  estimated  to 
have  cost  over  $200,000,000.  Among  the  other  items 
necessary  to  maintain  the  vast  marketing  organiza- 
tion throughout  the  United  States,  are  filling  sta- 
tions, warehouses,  tank  wagons,  motor  trucks,  pri- 
vate railroad  sidings,  storage  tanks,  etc.  The  mar- 
keting investment  would  total  not  less  than  $650,- 
000,000. 

The  industry  carries  at  all  times  large  quanti- 
ties of  crude  oil  and  refined  products.  The  crude 
oil  "above  ground,"  between  the  field  tanks  and  the 
refinery  storage  tanks,  varies  from  day  to  day,  the 
average  amount  being  about  125,000,000  barrels 
which,  at  the  prices  ruling  early  in  1921,  would  be 
worth  approximately  $200,000,000.  Between  the 
refinery  and  the  filling  stations  and  retail  stores  are 
vast  quantities  of  gasoline,  kerosene,  lubricating  oils 
and  other  refined  products  worth,  at  current  retail 
prices,  approximately  $200,000,000. 

146 


THE  PETROLEUM  INDUSTRY 

A  summary  of  the  preceding  estimates  of  the 
investment  in  the  petroleum  industry  in  the  United 
States,  as  of  the  year  1921,  would  be  as  follows : 

Production   $3,500,000,000 

Transportation    . . .      500,000,000 

Refining    2,000,000,000 

Marketing    1,500,000,000 

Total   $7,500,000,000 

The  best  estimates  available  place  the  "sales" 
of  the  refined  products  of  petroleum  at  from  $2,- 
500,000,000  to  $2,700,000,000  annually.  Accepting 
the  smaller  amount  as  a  conservative  valuation,  and 
the  total  investment  at  $7,500,000,000,  an  approxi- 
mation can  be  had  of  what  the  petroleum  industry 
means  to  this  country,  when  viewed  from  the  stand- 
point of 

"A     GREAT     AMERICAN     INDUSTRY". 


147 


CHAPTER  X 

FINANCE— AND  THE  GROWTH  OF 
INDUSTRIES 

Regardless  of  the  division  of  human  history  in- 
to the  Stone  Age,  the  Iron  Age,  the  Bronze  Age  and 
so  on,  the  fact  remains  that,  for  about  a  century, 
we  have  been  living  in  three  Ages,  all  combined 
into  one. 

Scarcely  more  than  a  century  ago  Watt  invent- 
ed the  steam  engine  and  thereby  launched  the  "Age 
of  Steam." 

When  Franklin  with  his  kite  drew  the  electric 
spark  from  the  clouds  he  launched  the  "Age  of 
Electricity." 

And  little  did  Drake  dreaim,  on  August  27, 
1859,  when  the  first  barrel  of  petroleum  was  drawn 
from  the  well  that  he  was  that  day  launching  the 
"Age  of  Petroleum". 

Steam  is  Power — but  it  calls  for  engines,  so 
that  it  can  turn  the  wheels  of  industry. 

Electricity  is  Power — but  it  calls  for  motors  so 
that  it  can  serve  humanity. 

148 


THE  PETROLEUM  INDUSTRY 

Petroleum  is  Power — but  it  calls  for  the  inter- 
nal combustion  engine,  so  that  its  gasoline  can  drive 
the  automobile,  the  motor  truck,  the  tractor  and 
the  aeroplane. 

Steam,  Electricity  and  Petroleum  have  com- 
bined to  give  us  the  "Age  of  Machinery" — ^and  in 
delving  through  the  history  of  nations,  from  the 
earliest  dawn  to  the  beginning  of  the  last  century, 
one  is  amazed  to  find  that  "civilization"  had  prac- 
tically no  machines. 

It  is  difficult  to  realize  that  agricultural  ma- 
chinery, railroads,  steamboats,  street  cars,  tele- 
graphs, telephones,  electric  lights,  automobiles,  mo- 
tor trucks,  farm  tractors,  aeroplanes  have  all  come 
into  our  civilization  within  the  last  100  years — and 
nearly  all  of  them  within  the  present  generation. 

It  is  difficult  to  realize  that  down  through  forty 
centuries  these  things  were  totally  unknown — and 
that  all  of  them  have  come  within  one  century. 

When  the  South  Carolina  Railroad  placed  its 
American-built  locomotive  on  its  six  miles  of  track, 
January,  1831,  it  launched  tlie  American  Railroad 
Industry  that  in  October  1919  had  a  physical  valu- 
ation of  almost  Nineteen  Billion  Dollars.  From  this 
first  crude  type  of  locomotive  there  has  evolved  the 

149 


THE  PETROLEUM  INDUSTRY 

giant  triplex,  articulated,  compound  mallet  type 
that  weighs  200  tons  and  will  pull  a  train  a  mile 
long,  and  lighter  passenger  engines  with  regular 
schedules  of  "a  mile  a  minute."  From  the  first 
crude  car  have  evolved  the  palatial  all-steel  coaches, 
sleepers  and  diners  of  today.  From  the  first  6  miles 
of  track  has  evolved  266,000  miles  of  main  line. 
From  the  employees  of  this  first  little  road  there 
has  grown  up  a  great  working  organization  num- 
bering 1,700,000  in  1914,  with  an  annual  payroll  of 
$1,381,000,000— possibly  8,000,000  people  in  the 
United  States  are  today  dependent,  directly  or  indi- 
rectly, on  the  railroads  for  their  daily  bread. 

The  people  who  "furnished  the  Tnoney"  that 
made  this  first  train  possible  had  no  conception  of 
what  the  industry  they  were  financing  would  mean 
to  the  world,  or  that  this  first  "investment"  in  rail- 
roads would  grow  in  less  than  a  century  to  nearly 
Nineteen  Billion  Dollars. 

The  network  of  railroads  spread  over  the  Uni- 
ted States  so  rapidly  that  there  was  no  possibility 
of  the  profits  being  large  enough  to  pay  dividends, 
and  allow  the  railroads  to  grow  at  the  same  time. 
Therefore  our  first  great  American  industry,  the 
railroads,  soon  learned  that  in  order  to  grow  they 

150 


THE  PETROLEUM  INDUSTRY 

would  have  to  go  to  the  public,  whom  they  served, 
for  the  money. 

The  growth  in  mileage  and  in  rolling  stock  and 
in  payrolls  has  been  so  rapid  and  the  need  for  mon- 
ey to  meet  this  expansion  has  been  on  such  a  vast 
scale  that  it  could  be  met  in  only  one  way — and  that 
was  by  the  creation  of  railroad  securities  to  be  of- 
fered to  the  public  as  investments — and  the  public's 
money  built  the  railroads. 

In  reviewing  a  century's  railroad  history  there 
is  no  questioning  the  fact  that  their  physical  growth 
outran  their  financial  development — ^with  all  of  the 
unfortunate  results  that  surely  and  swiftly  follow 
in  the  wake  of  "lopsided"  growth. 

If  the  railroads  in  the  early  history  of  the  in- 
dustry, had  adopted  such  policies  of  management 
as  would  have  laid  special  emphasis  on  the  profita- 
ble operation  of  the  roads,  evidenced  by  ample  re- 
turns to  the  people  who  furnished  the  money  to  build 
and  equip  them,  there  is  absolutely  no  question  but 
that  they  would  never  have  lacked  plentiful  supplies 
of  outside  capital  for  expansion  and  development 
and  at  the  same  time  they  would  have  avoided  at 
least  a  large  part  of  the  public's  attitude  that  has, 
on  frequent  occasions,  found  expression  in  legisla- 

151 


THE  PETROLEUM  INDUSTRY 

tion  that,  to  say  the  least,  has  been  antagonistic. 
Viewed  in  the  light  of  physical  accomplishment  the 
building,  equipping  and  operating  of  more  than  a 
quarter  of  a  million  miles  of  railroad  stands  as  an 
enduring  monument  to  American  genius — but  it  is 
a  regrettable  fact  that  the  roads  have  not  rendered 
as  satisfactory  a  service  to  the  people  who  fur- 
nished the  money  that  built  and  equipped  them  as 
they  have  to  their  patrons. 

The  distribution  of  the  products  of  the  agricul- 
tural implement  industry  has  been  especially  charac- 
terized by  "long  terms"  to  the  farmer.  Long  terms 
means  slow  turn-over  of  capital,  thereby  necessitat- 
ing large  amounts  of  it.  This  money  has  come  from 
"the  outside,"  as  is  evidenced  by  the  millions  of  dol- 
lars worth  of  stocks  and  bonds  issued  by  the  agri- 
cultural implement  manufacturers. 

The  telegraph,  telephone  and  electrical  com- 
panies have  asked  for  and  received  hundreds  of  mil- 
lions of  dollars  of  the  public's  money,  and  the  rapid 
expansion  of  these  businesses  has  been  made  possi- 
ble only  by  addition  of  new  capital  from  the  outside. 

There  can  be  no  questioning  the  fact  that  our 
great  industries  render  great  service  to  the  public — 
to  all  of  the  people — and  the  real  measui>i  of  every 

152 


THE  PETROLEUM  INDUSTRY 

industry  is  the  value  of  the  service  it  renders  to  its 
public.  It  is  just  as  essential,  and  just  as  uound 
business,  for  the  people  who  finance  a  business  to 
receive  ample  financial  returns,  as  for  the  public  to 
receive  satisfactory  service. 

In  analyzing  the  financial  structure  of  corpora- 
tions one  is  almost  forced  to  the  conclusion  that,  in- 
stead of  all  of  the  shareholders  of  a  business  having 
one  viewpoint,  the  Board  of  Directors  looks  at  the 
business  from  one  angle  while  the  remaining  share- 
holders look  at  it  from  another  angle — and  it  is 
rather  obvious  that  much  of  the  frequently  dis- 
trustful attitude  of  the  public  towards  the  Common 
and  Preferred  Stocks  of  corporations  has  its  origin 
in  the  fact  that  only  too  frequently  do  Boards  of  Di- 
rectors apparently  forget  the  vital  reason  why 
shareholders  invest  in  their  capital  stock. 

Soliciting  subscriptions  to  capital  stock  on  the 
basis  that  "the  principal  is  safe"  is  entirely  beside 
the  question,  because  safety  of  principal  is,  or 
should  be,  to  investments  what  honesty  is  to  every- 
day transactions — ^while  ability  is  the  added  qualifi- 
cation that  is  desired.  In  business,  safety  of  prin- 
cipal should  be  established  by  conformance  with  the 
spirit,  as  well  as  the  letter,  of  corporation  legisla- 

153 


THE  PETROLEUM  INDUSTRY 

tion,  while  earning  power  remains  to  be  perpetually 
demonstrated  because  it  is  based  on  the  ability  of 
people. 

In  the  language  of  our  political  economists,  the 
function  of  money  is  to  serve  as  "a  medium  of  ex- 
change"— but  the  function  of  capital  is  to  multiply 
itself — and  the  anticipation  of  the  "multiplication" 
of  his  capital  is,  and  should  be,  the  shareholder's 
strongest  reason  for  investing — and  to  honestly 
provide  this  "multiplication"  for  the  shareholders 
is,  and  should  be,  the  chief  reason  for  the  existence 
of  the  Board  of  Directors,  who,  as  shareholders,  find 
their  greatest  duty  in  securing  the  "full  earning 
power"  rather  than  the  "rental  value"  from  the 
money  obtained  not  only  from  the  sale  of  Stock  but 
also  from  Bonds  and  Short  Term  Notes. 

Probably  the  greatest  stumbling  block  in  the 
financing  of  business  in  the  past  has  been  the  way 
the  growth  of  business  has  been  taken  care  of,  from 
the  standpoint  6i  the  people  who  financed  it.  It  is 
obviously  true  that  the  net  profits  of  a  business  be- 
long to  its  owners — and  it  is  obviously  fair  that  the 
returns  on  their  invested  capital  should  not  be  pen- 
alized to  enable  the  business  to  grow.  In  other 
words,  net  profits  represent  invested  capital's  re- 

154 


THE  PETROLEUM  INDUSTRY 

turn  and  should  be  paid  to  those  who  furnished  it, 
while  the  growth  of  the  business  should  be  taken 
care  of  through  additional  capital  from  the  outside. 

While  it  is  conceivable  that  a  slow-growing 
business  could  pay  its  shareholders  the  customary 
"rental  value"  of  the  money  that  they  Had  invested 
in  it  and  still  have  a  margin  that  would  take  care  of 
its  growth,  yet  such  a  business  would  not  be  very 
attactive  to  an  investor  who  wanted  the  "full  earn- 
ing power"  of  his  money.  It  is  also  obvious  that  the 
faster  a  business  grows  the  larger  will  be  the 
amounts  of  additional  capital  that  it  will  require 
each  year,  to  take  care  of  its  growth. 

Regardless  of  its  line  of  business,  when  a  com- 
pany with  a  long  and  satisfactory  dividend-paying 
record  is  in  need  of  new  capital,  its  chances  of  get- 
ting all  it  needs  when  it  needs  it,  are  infinitely  bet- 
ter than  the  non-dividend-paying  company  which 
has  actually  earned  good  profits,  but  whose  Board 
of  Directors  either  "passed  the  dividends"  or  paid 
very  small  ones  in  order  to  "put  the  money  back  into 
the  business" — ^instead  of  into  the  investors'  pockets. 

In  1899  there  were  3,723  automobiles  manu- 
factured in  the  United  States — in  1920  the  factories 
turned  out  1,906,000. 

155 


THE  PETROLEUM  INDUSTRY 

The  growth  of  the  automobile  industry  has 
been  so  rapid  that  there  never  has  been  a  year  dur- 
ing which  its  growth  could  have  been  financed  from 
its  profits.  The  sums  of  money  needed  for  new  fac- 
tory buildings,  new  machinery,  bigger  stocks  of  raw 
materials,  new  factory  branches  and  new  models, 
were  too  vast  to  be  supplied  from  the  company  s 
profits.  It  is  perfectly  obvious  that  the  company 
that  makes  25%  net  profit  on  its  year's  business,  and 
then  shows  a  100%  increase  in  its  next  year's  sales 
couldn't  have  done  it  without  additional  money  from 
an  outside  source,  even  if  its  Board  of  Directors  had 
"passed  the  dividend"  and  put  all  of  the  25%  net 
profits  "back  into  the  business." 

The  wholesale  value  of  the  automobiles  manu- 
factured in  the  United  States  in  1920  amounted  to 
over  $1,700,000,000— and  if  the  industry  is  to  con- 
tinue to  grow,  it  must  continue  getting  new  capital. 
Only  when  a  business  ceases  growing  does  it  cease 
needing  new  capital — then  it  needs  new  brains. 

Some  idea  of  the  capital  requirements  and  tre- 
mendous growth  of  the  petroleum  industry,  espe- 
cially during  the  last  few  years,  can  be  obtained 
from  a  recent  analysis  of  250  oil  companies.  This 
analysis  includes  108  companies  organized  prior  to 

156 


THE  PETROLEUM  INDUSTRY 

Dec.  31,  1911,  and  142  companies  organized  after 
Jan.  1,  1912.  The  108  companies  include  all  of  the 
Standard  Oil  "group"  (about  35  companies)  and  70- 
odd  of  the  larger,  older  "independents."  The  142 
companies  include  large  independents  for  which 
available  records  are  practically  complete.  The  rec- 
ords show  that  on  Dec.  31,  1914,  the  outstanding 
stock  of  these  companies  was  approximately  $1,000,- 
000,000— and  that  on  Dec.  31,  1919,  it  was  approxi- 
mately $2,500,000,000— or  an  increase  of  $1,500,- 
000,000  in  the  5  years  from  Jan.  1,  1915,  to  Dec.  31, 
1919.  In  other  words,  at  the  end  of  55  years  (1859- 
1914)  these  companies  were  capitalized  at  One  Bil- 
lion Dollars — but  in  the  next  5  years  (1915-1919) 
there  was  added  One-and-a-Half  Billion  Dollars 
more  capitalization. 

In  the  face  of  this  stupendous  capital  expansion 
it  is  only  fair  to  state  that  these  250  companies  rep- 
resent the  very  best  element  of  the  petroleum  in- 
dustry— that  they  represent  the  bulk  of  the  "assets" 
summarized  in  Chapter  IX  as  aggregating  $7,500,- 
000,000 — and  that  they  do  not  represent  any  of  that 
type  of  oil  companies  whose  devious  methods  have 
caused  many  uninformed  people  to  bitterly  condemn 
the  oil  business — instead  of  its  counterfeit,  "the  oil 
game." 

157 


CHAPTER  XI 
CREATING   INVESTMENT   SECURITIES 

Putting  money  to  work  is  very  much  like  rent- 
ing a  farm — ^there  are  two  ways  of  doing  it : 
1st— Flat  Rent 
2nd— "On-the-Shares" 
It  is  perfectly  obvious  that  the  way  the  farm  is 
rented  does  not  affect  the  fertility  of  the  soil — and 
the  way  it  is  rented  should  not  affect  the  ability  of 
the  renter  to  get  the  largest  crop  possible — but  the 
way  it  is  rented  does  affect  the  division  of  the  earn- 
ings at  the  end  of  the  year. 

By  way  of  comparison,  take  the  case  of  the 
"XYZ  Corporation"  and  Mr.  Jones,  a  laboring  man, 
who  has  $400  to  invest.  There  are  two  ways  for 
Jones  to  invest  his  money: 

1st.     Flat  rent — the  rate  is  determined  in  ad- 
vance. 
2nd.     "On-the-Shares" — the  amount  it  earns  is 
known  at  the  end  of  the  year. 


158 


THE  PETROLEUM  INDUSTRY 

The  XYZ  Corporation  has  four  kinds  of  securi- 
ties to  offer  and  Jones  decides  to  invest  $100  in  each 
kind — so  he  puts 

$100  in  6%  Gold  Bonds,  due  in  1941 

$100  in  7%  Preferred  Stock 

$100  in  S%  Gold  Notes,  due  in  1926 

$100  in  Common  Stock 
Each  of  these  securities  is  distinctly  different 
from  the  others — but  as  soon  as  the  $400  is  paid  in 
ft  does  not  remain  separate,  any  more  than  water 
flowing  from  four  wells  into  a  tank  remains  sepa- 
rate. All  of  the  money  promptly  starts  to  work  on 
the  same  job,  and  with  equal  effectiveness — but 
when  the  end  of  the  year  comes  Jones  receives  a 
different  amount  from  each  $100  investment,  re- 
gardless of  the  fact  that  each  dollar  of  the  $400 
worked  side  by  side,  doing  exactly  the  same  work 
and  earning  exactly  the  same  returns  for  the  cor- 
poration. 

The  above  represents  only  four  general  types  of 
investments,  but  there  are  a  great  many  different 
kinds  of  Bonds,  Short  Term  Notes  and  Stocks  on 
the  market  today  and  the  variations  are  increasing 
ever  year.  They  differ  in  rate  of  interest  or  divi- 
dends— and  in  the  amount  and  quality  of  security 

159 


THE  PETROLEUM  INDUSTRY 

back  of  each  issue — and  in  the  preference  of  one 
issue  over  others  in  the  payment  of  interest  or  divi- 
dend— and  in  the  preference  of  one  issue  over  others 
in  the  distribution  of  the  assets  if  the  business  is 
liquidated,  etc. 

This  confusing  multiplicity  of  types,  and  varia- 
tion of  types,  has  resulted  in  the  organization  of 
highly  specialized  Bond  Houses,  Investment  Bank- 
ing Organizations  and  other  distributors  of  securi- 
ties, each  with  its  force  of  salesmen  thoroughly 
trained  to  render  a  genuine  service  in  the  selection 
of  the  particular  type  of  security  that  will  best  meet 
the  needs  of  each  individual  investor. 

This  service  is  constantly  used  by  practically  all 
of  the  largest  business  organizations  in  the  land, 
and  although  they  handle  millions  of  dollars  in  their 
own  business  with  which  they  are  thoroughly  famil- 
iar, they  do  not  trust  wholly  to  their  own  judgment 
in  the  selection  of  the  investments  which  they  make, 
either  as  corporations  or  as  individuals. 

Had  the  "small  investors"  of  America  followed 
the  practice  of  "large  investors,"  if  only  to  the  ex- 
tent of  establishing  the  integrity  of  the  securities 
offered,  they  would  have  been  saved  hundreds  of 
millions  of  dollars — their  confidence  in  the  spirit 

160 


THE  PETROLEUM  INDUSTRY 

and  purpose  of  corporate  organizations  would  not 
have  been  shattered — and  much  of  the  difficulty 
tTiat  absolutely  meritorious  propositions  have  en- 
countered when  seeking  additional  capital,  would 
never  have  existed. 

During  the  world  war  we  passed  through  a 
period  of  "dear  money"  and  as  a  result  the  Bonds, 
Stocks,  etc.,  issued  during  that  period  carried  higher 
rates  of  interest  and  dividends  than  the  average  for 
a  great  many  years.  Bonds  that  during  periods  of 
"cheap  money"  could  have  been  floated  at  5'%>  were 
issued  during  the  war  at  7%  and  8%.  Preferred 
Stocks  that  would  have  been  issued  ten  years  ago 
at  6%  were  issued  at  S%  .  Short  Term  Notes  issued 
during  the  war  were  almost  uniformly  at  8  a  .  In 
addition  to  these  unusually  high  rates  a  great  many 
Bonds,  Preferred  Stocks,  Short  Term  Notes,  etc., 
were  quoted,  at  the  time  of  issue,  at  prices  below 
par,  thereby  making  them  more  attractive  to  the 
investor. 

Like  the  ebb  and  flow  of  the  tides,  the  money 
market,  over  varying  periods  of  time,  goes  from 
cheap  to  dear  and  back  again — and  this  fact  is  one 
of  the  reasons  why  interest  and  dividend  rates  vary 
on  the  same  type  of  security  issued  at  different 
times. 

161 


THE  PETROLEUM  INDUSTRY 

Life  insurance  companies,  colleges  and  institu- 
tions Xwith  endowments  that  produce  a  fixed  in- 
come) ,  trustees  of  estates,  wealthy  people,  etc.,  want 
investments  that  run  for  10,  20,  30,  5D  years  and 
with  "absolute  safety" — this  class  of  investors  buy 
Bonds. 

Some  investors  want  their  money  back  in  5 
years — they  can  invest  in  Real  Estate  Mortgages. 

Others  want  their  money  back  in  1  to  5  years — 
they  can  buy  Short  Term  Notes. 

Others  want  to  feel  that  they  own  an  interest  in 
a  business  from  which  they  will  receive  a  fixed  re- 
turn, usually  6%  to  8% — they  buy  Preferred  Stock. 

And  still  others  want  to  own  an  interest  in  a 
business  from  which  they  will  receive  the  "full  earn- 
ing power"  of  their  money — these  buy  Common 
Stock. 

According  to  the  New  York  Journal  of  Com- 
merce the  aggregate  capitalization  of  all  of  the  new 
corporations  of  all  kinds  organized  in  the  United 
States  during  the  year  1920  amounted  to  almost 
Fourteen  Billion  Dollars.  This  vast  amount  is  near- 
ly twice  as  much  as  the  estimated  assets  of  the  en- 
tire petroleum  industry — it  is  almost  twice  the  value 
of  the  8,500,000  motor  vehicles  in  the  United  States 

162 


THE  PETROLEUM  INDUSTRY 

in  1921 — it  is  about  twice  the  total  "money"  in  the 
United  States  June  30,  1919. 

The  question  naturally  arises,  "If  the  public 
has  the  money  to  invest  in  hundreds  of  millions  of 
dollars  worth  of  securities  ever  year — and  if  bond 
houses,  banks  and  other  agencies  distribute  these 
securities  to  the  investing  public — who  creates 
them  7" 

There  are  two  widely  different  sources  from 
which  investment  securities  may  be  created : 

Fiy^st — Bonds  are  issued  by  our  national  gov- 
ernment, our  state  governments,  counties,  town- 
ships, school  districts,  incorporated  towns  and  cities. 
These  bonds  are  "secured"  by  the  ability  of  the  peo- 
ple to  pay  taxes  and  they  rank  as  the  very  highest 
type  of  security.  Although  their  interest  rates  are 
uniformily  low  they  are  tax-free,  and  therefore 
their  earning  power  is  about  the  same  as  the  net 
earning  power  of  the  average  6%  and  7%  industrial 
investment. 

Second — ^Bonds,  Stocks,  Short  Term  Notes,  etc., 
issued  by  industrial  corporations.  Such  investment 
securities  are  "secured"  in  two  ways,  although  most 
people  give  very  little  thought  to  but  one  of  them: 
They  are  secured  by  the  "physical  assets"    of    the 

163 


THE  PETROLEUM  INDUSTRY 

corporation  in  the  shape  of  land,  buildings,  machin- 
ery, raw  materials,  rights  of  way,  roundhouses,  ter- 
minals, pumping  stations,  rolling  stock,  etc.  These 
are  the  things  that  most  investors  think  of  when 
they  think  of  the  "security"  back  of  the  Corporation 
Stocks  or  Bonds  that  they  own.  But  there  is  an  "in- 
visible" form  of  security  that  the  investor  should 
endeavor  to  assure  himself  is  back  of  the  Stock  or 
Bond  before  he  invests  in  it — for  if  this  form  of 
security  is  not  there,  then  his  investment  will  return 
him  no  interest  or  dividends  and  probably  little  or 
nothing  of  his  principal. 

This  security  is  the  ability  of  the  men  in  charge 
of  the  corporation's  affairs  to  operate  the  business 
successfully — and  the  most  satisfactory  proof  of  the 
presence  of  that  ability  lies  in  the  payment  of  inter- 
est on  the  outstanding  Bonds  and  Notes  and  divi- 
dends on  the  outstanding  Stocks. 

The  great  majority  (it  has  been  estimated 
90%)  of  new  corporations  never  arrive  at  the  divi- 
dend-paying stage — therefore  if  the  investor  con- 
fines his  investments  to  "dividend-paying  stocks" 
he  has  thereby  eliminated  90%  of  the  chance  of  loss. 

As  our  first  industries  sprang  up  in  "the  East" 
so  our  first  financing  sprang  up  in  the  East — mostly 

164 


THE  PETROLEUM  INDUSTRY 

in  "Wall  Street."  And  as  the  industries  spread  over 
the  United  States  the  financial  organizations  spread 
with  them.  Most  of  the  short-term  financing  (30, 
60  and  90-day  loans)  needed  by  the  tens  of  thou- 
sands of  industrial  organizations  scattered  over  the 
United  States  is  done  by  the  local  banks,  but  the 
majority  of  the  long-term  financing,  in  large 
amounts,  is  arranged  for  in  a  few  large  financial 
centers,  the  greater  part  of  it  still  being  done  in 
the  East. 

There  are  today  probably  four  thousand  houses 
in  the  United  States  that  are  recognized  distributors 
of  securities.  Of  this  number  there  are  not  more 
than  1,000  that  make  any  pretense  of  buying  entire 
issues,  and  there  are  probably  not  more  than  a  few 
hundred  who  are  willing  and  able  with  their  own 
resources  to  purchase  issues  of  a  million  dollars  or 
more. 

Any  one  of  the  larger  of  these  financial  insti- 
tutions will  "underwrite"  (buy  outright)  issue  after 
issue,  today  $5,000,000  for  an  irrigation  project, 
next  month  $2,000,000  for  a  street  railway  com- 
pany, then  $1,000,000  for  a  coal  mine,  $10,000,000 
for  a  railroad,  then  $25,000,000  for  a  foreign  gov- 
ernment and  so  on,  the  total  issues  handled  in  one 

165 


THE  PETROLEUM  INDUSTRY 

year  by  some  of  the  larger  of  these  houses  often 
running  into  many  millions  of  dollars. 

The  question  naturally  arises — "How  can  these 
financial  institutions,  however  large,  have  among 
their  officers  and  directors  men  who  are  qualified 
to  pass  on  a  dozen,  or  fifty,  absolutely  different  in- 
dustrial propositions,  in  one  year,  scattered  over 
this  and  other  countries  and  amounting  to  many 
millions  of  dollars?  What  do  they  know,  down  in 
New  York  City,  or  in  any  of  the  other  large  cities, 
about  an  irrigation  project  in  Arizona,  a  street  rail- 
way in  Omaha,  a  coal  mine  in  southern  Illinois,  the 
buflding  of  an  extension  to  a  railroad  in  Montana 
or  the  internal  development  of  the  Argentine?" 

These  men  can't  know  all  these  things — and 
they  don't  pretend  to.  But  what  they  do  know  is, 
where  the  money  is — and  how  to  cause  it  to  flow 
to  where  it  is  wanted.  If  the  issue  is  a  very  large 
one  several  houses  may  combine  to  underwrite  it, 
but  with  smaller  issues  one  house  will  underwrite 
the  entire  issue  of  Bonds,  Stocks  or  whatever  the 
type  of  security — write  one  check  for  the  entire 
amount — and  then  get  in  touch  with  their  "corre- 
spondents" scattered  over  the  United  States.  These 
houses  get  in  touch  with  their  own  houses,  and  so 

166 


THE  PETROLEUM  INDUSTRY 

on  down  the  line,  until  the  last  distributor,  maybe 
a  bank  in  a  small  town,  gets  his  "allotment"  of  these 
Bonds  or  Stocks,  possibly  only  a  few  hundred  or  a 
few  thousand  dollar's  worth.  There  are  hundreds 
of  instances  on  record  of  entire  issues  amounting  to 
millions  of  dollars  being  over-subscribed  within  24 
hours — some  within  one  hour — after  they  were 
offered. 

But  before  this  issue  is  distributed,  or  the  check 
written,  the  Bonds  or  Stocks  must  be  "created" — 
and  to  do  this  requires  the  use,  by  these  great  finan- 
cial organizations,  of  many  different  kinds  of  serv- 
ice, by  many  different  kinds  of  organizations  scat- 
tered over  the  country. 

As  an  example,  let  us  take  the  $5,000,000  Bond 
issue  for  the  irrigation  project  in  Arizona  with  "the 
money"  in  Chicago. 

Briefly  the  steps  in  the  proposition  would  be 
about  as  follows :  The  people  back  of  the  irrigation 
project  would  go  to  Chicago  with  complete  maps, 
plans,  statistics,  general  information,  etc.  and  lay 
the  entire  proposition  before  the  proper  "commit- 
tee" of  one  of  these  large  institution^.  Years  of 
experience  in  handling  many  different  kinds  of  in- 
dustrial propositions,  in  every  part  of  the  country, 

167 


THE  PETROLEUM  INDUSTRY 

enable  these  men  to  make  a  quick  and  thorough 
analysis  of  the  more  important  points  of  the  irri- 
gation project.  If  the  proposition,  in  a  general  way, 
appeals  to  them  and  looks  to  be  fundamentally 
sound,  they  get  in  touch  with  their  special  agencies, 
trained  in  handling  irrigation  projects.  Among 
these  are  general  investigators  who  are  qualified  to 
"size  up"  big  propositions.  These  men  would  per- 
sonally inspect  the  site,  investigate  the  men  back 
of  the  project,  the  industrial  condition  of  the  terri- 
tory to  be  served,  the  water  supply,  etc.  Civil  En- 
gineers, Mechanical  Engineers  and  other  technical 
men,  each  qualified  by  years  of  experience  to  pass 
on  his  particular  line  of  work,  would  personally 
visit  the  site  of  the  project  and  make  a  thorough 
investigation.  Attorneys  would  ascertain  the  le- 
gality, terms,  etc.  of  the  franchise  and  the  corporate 
powers  and  responsibility  of  the  irrigation  com- 
pany, etc.  Each  of  these  special  investigators 
would  send  his  report  to  Chicago  where  statisticians 
and  experts  would  tabulate  all  of  the  information, 
condense  it  into  a  report  and  submit  it  for  final 
action.  If  approved,  the  check  for  $5,000,000  is 
written,  the  bonds  are  sold,  the  interest  is  paid 
when  due,  the  Bonds  are  paid  off  as  they  mature,  or 
before — and  everybody  is  satisfied. 

168 


THE  PETROLEUM  INDUSTRY 

Every  proposition  submitted  to  every  "house  of 
issue"  is  different  from  every  other  proposition — 
each  is  handled  separately,  and  a  half-dozen  may  be 
undergiong  investigation  by  different  specialists,  in 
widely  separated  sections  of  the  country,  at  the 
same  time  that  many  others  are  undergoing  their 
preliminary  investigation  in  the  main  office. 

Even  though  most  of  the  great  financial  institu- 
tions have  a  national  and  many  of  them  an  inter- 
national reputation,  they  don't  act,  they  can't  act, 
on  their  own  judgment,  except  as  that  judgment  is 
fortified  and  broadened  and  deepened  by  the  serv- 
ices of  these  specialists  many  of  whom  likewise 
have  national  reputations  in  their  own  particular 
line.  The  methoci  followed  in  the  $5,000,000  Irriga^ 
tion  Bond  issue  illustrates  only  one  method,  and 
probably  the  highest  type  method,  used  in  the  issue 
of  industrial  securities. 

Unfortunately  not  all  issues  of  Bonds  and 
Stocks  are  "created"  under  such  conditions  as  the 
foregoing,  which  practically  insure  the  investor 
against  loss  of  either  his  income  or  his  principal. 

The  marvelous  rate  at  which  wealth  is  increas- 
ing in  the  United  States,  the  thrift  of  the  people  as 
reflected  by  the  Billions  of  Dollars  on  deposit  in  the 

169 


THE  PETROLEUM  INDUSTRY 

national,  state  and  savings  banks,  together  with  the 
universal  desire  to  "make  the  saved  dollar  work" 
for  us — after  we  have  worked  for  it — have  all  com- 
bined to  pile  up  hundreds  of  millions  of  dollars  ev- 
ery year  that  should  be  wisely  invested. 

Long  years  of  our  earlier  life  are  spent  in 
school,  to  be  followed  in  many  instances  by  more 
years  spent  in  professional  or  technical  school,  or 
other  special  preparation,  in  learning  "how  to  make 
money,"  Until  recently  not  a  great  deal  has  been 
said  in  any  of  these  institutions  about  "how  to  save 
money" — and  a  pitifully  small  amount  of  time  has 
been  given  to  learning  even  the  simplest  principles 
underlying  "how  to  invest  money."  Judged  by  the 
attention  that  has  been  given  to  the  "investment" 
education  of  either  the  youth  or  the  adults  of  our 
country  one  would  conclude  that  the  investment  of 
money  was  a  matter  of  small  importance  in  human 
lives — instead  of  one  of  tremendous  importance — 
for  while  money  can  be  earned  only  by  labor,  it  can 
be  multiplied  only  by  investment. 


170 


CHAPTER  XII 

PETROLEUM'S  INDUSTRIAL  POSITION 

Petroleum's  industrial  position  is  best  revealed 
by  comparing  it,  as  an  industry,  with  other  indus- 
tries, and  then  ascertaining  how  far  they  are  de- 
pendant on  petroleum  and  how  the  loss  of  the 
products  of  petroleum  would  affect  these  industries 
— and  the  world's  progress. 

When  our  national  government  talks  of 
"wealth"  it  means  the  "developed  resources"  of  the 
country.  The  first  fewXensuses  of  the  United  States 
furnished  little  information  in  addition  to  giving 
the  number  of  inhabitants,  but  beginning  with  1850 
tTie  Census  Bureau  has  made  the  following  estimates 
of  the  wealth  of  the  United  States : 

1850  $  7,135,000,000 

1860  16,159,000,000 

1870  30,068,000,000 

1880  43,642,000,000 

1890  65,037,000,000 

1900  88,517,000,000 

1904  107,104,000,000 

1912  187,731,000,000 

171 


THE  PETROLEUM  INDUSTRY 

The  occupations   of  mankind   are  usually   di- 
vided into  four  groups: 

1 — Agriculture  (producing) 
2 — Mining  (procuring) 
3 — Manufacturing  (altering) 
4 — Commerce   (distributing) 
The  wealth  of  the  United  States  as  shown  by 
the  Census  Bureau's  figures  for  1912  (see  Table  20) 
was  divided  among  these  groups  as  follows : 

Agriculture    $123,882,000,000—66.0% 

Mining    3,431,000,000—  1.8% 

Manufacturing  .  .     36,756,000,000—19.6% 
Commerce    23,662,000,000—12.6% 


$187,731,000,000—100% 
The  use  of  machinery  on  the  farm  began  with 
the  threshing  machine  about  1825,  followed  by  the 
reaping  machine  about  1841  (invented  10  years 
earlier)  followed  by  the  self-binder,  the  grain  drill 
and  other  horse-drawn  implements. 

After  40  centuries  without  machinery,  the 
farmer  has  had  almost  one  century  with  machinery 
and  about  20  years  of  "motorized"  farming,  with 
gasoline  engines,  tractors,  motor  trucks  and  auto- 
mobiles. 

172 


Table    20  —  Sum/mary    of    tKe    distribution    of 

wealth  by  industries: 

AGRICULTURE 
Real  property  (land  and  buildings)  $110,676,000,000 

Live  stock 6,238,000,000 

Agricultural  products 5,240,000,000 

Farm  implements  and  machinery.        1,368,000,000 
Irrigation  enterprises 360,000,000 

Total 123,882,000,000 

MINING 

Gold  and  silver  coin  and  bullion 2,616,000,000 

Mining  products 815,000,000 

Total 3,431,000,000 

MANUFACTURING 

Manufacturing  machinery  and  tools.    6,091,000,000 

Manufacturing   products 14,693,000,000 

Imported  merchandise 826,000,000 

Clothing'  and  personal  ornaments...   4,295,000,000 

Furniture  and  carriages,  etc 8,463,000,000 

Private  owned  water  works 290,000,000 

Private  owned  central  electric  light 

and  power  stations 2,098,000,000 

Total 36,756,000,000 

COMMERCE 

Railroads  and  Equipment 16,14,8,000,000 

Pullman  and  private  cars 123,000,000 

Street  railways 4,596,000,000 

Telegraph  and  telephone 1,304,000,000 

Shipping  and  canals 1,491,000,000 

Total 23,662,000,000 

Grand  total,  Wealth    in    the    United 

States  1912 $187,731,000,000 

173 


THE  PETROLEUM  INDUSTRY 

If  the  United  States  is  to  be  self-supporting  in 
the  matter  of  producing  food  stuffs  and  clothing 
materials,  with  more  than  20,000,000  families  in  the 
United  States  and  about  7,000,000  farms,  each 
farmer  must  produce  enough  for  his  own  family 
and  for  two  other  families  who  don't  live  on  farms 
— who  are  consumers  of  farm  products,  not  pro- 
ducers. 

The  constantly  increasing  proportion  of  non- 
producing  consumers  of  farm  products  was  empha- 
sized by  the  census  of  1920  that  showed  over  half  of 
our  entire  population  living  in  cities.  Table  21 
shows  the  rapid  change  in  the  last  40  years  in  the 
percentage  of  our  population  living  on  farms  and  in 
towns  and  cities. 

According  to  the  United  States  Census  Bureau 
"urban"  inhabitants  are  those  living  in  incor- 
porated places  of  2,500  inhabitants  or  more;  all 
other  inhabitants  are  classed  as  "rural."  In  1920 
there  were  9,864,196  people  (9.3%  of  the  entire 
population)  living  in  incorporated  places  of  less 
than  2,500  inhabitants,  therefore  only  38.8% 
(48.1%  minus  9.3%)  of  our  population  lived  in  the 
"country,"  while  61.2%  lived  in  incorporated  places. 


174 


THE  PETROLEUM  INDUSTRY 

Table  21 — Changes  in  urban  and  rwal  popula- 
tion : 

Census  Urban  Rural 

1880    29.5%  70.5% 

1890    36.1%  63.9% 

1900    40.5%  59.5% 

1910    46.3%)  53.7% 

1920    51.9%  48.1% 

From  1910  to  1920  our  population  increased 
13,710,842,  or  14.9%,  but  dividing  this  increase  be- 
tween the  incorporated  places  and  the  country  we 
find  that  the  incorporated  places  increased  13,938,- 
197  while  the  country  actually  decreased  227,355. 

The  essential  resource  of  agriculture  is  the  fer- 
tility of  the  soil,  but  with  the  percentage  of  man- 
power on  farms  decreasing  at  the  same  time  that 
the  demand  for  farm  products  is  increasing ,  there 
is  but  one  answer  to  the  demand  for  more  food :  and 
that  answer  is  "motorized  farming."  Some  idea  of 
the  results  from  "power"  farming,  in  the  shape  of 
increased  production  of  crops,  can  be  gleaned  from 
the  following  figures  which  show  the  increase  in  the 


175 


THE  PETROLEUM  INDUSTRY 

value  of  our  farm  crops  from  1880  to  1917 : 

1880  $  1,212,000,000 

1890  1,460,000,000 

1900  3,191,000,000 

1910  5,487,000,000 

1917  13,610,000,000 

From  1795  to  1807  the  Napoleonic  wars  so  oc- 
cupied the  nations  of  Europe  that  American  agri- 
cultural products  found  ready  markets  and  our 
farming,  shipbuilding  and  commerce  flourished.  In 
1807,  in  an  attempt  to  remain  neutral  to  both  Eng- 
land and  France,  our  Congress  passed  the  "Em- 
bargo Act"  which  immediately  closed  most  of  our 
markets  and  paralyzed  shipbuilding.  Capital  in- 
vested in  shipbuilding  and  commerce  soon  sought 
new  channels  much  of  it  going  into  the  manufacture 
of  products  we  had  been  importing  in  exchange  for 
our  agricultural  products.  In  1810  the  products 
of  our  factories  were  valued  at  $173,000,000 — in 
1914  they  were  valued  at  over  Twenty-Four  Billion 
Dollars. 

The  last  50  years  has  marked  a  definite  "tran- 
sition period"  in  American  history  during  which 
our  vast  development  of  Machinery  and  Power  has 
turned  the  current  of  our  Industrial  life  into  the 
channels  of  manufacturing  and  commerce. 

176 


Figure  54  —  First  railroad  train  in  New  Jersey  in   1831. 


Figure  55  —  First  central  power  station  in  the  United 
States  at  Appleton,  Wisconsin,  1882.  Capacity  250  lamps. 
The  Edison  dynamo,  shown  in  the  center,  was  built 
in  1883.  Compare  this  plant  with  the  modern  hydro- 
electric   plant   shown    in    Figure   57. 


O    00 


O     § 


3     S 


THE  PETROLEUM  INDUSTRY 

Table   22  —  Growth   in   value    of   manufactured 
products. 

1870     $  4,232,000,000 

1880     5,369,000,000 

189T)     9,372,000,000 

1900     11,406,000,000 

1910     20,672,000,000 

19r4     24,246,000,000 

It  has  been  estimated  that  the  coal  resources  of 
the  United  States,  based  on  present  consumption, 
are  sufficient  for  about  6,000  years — but  in  order 
to  ''see"  what  one  year's  coal  'production  in  the 
Unfted  States  means,  imagine  the  coal  loaded  into 
cars  each  40  feet  long  and  holding  45  tons — the 
"train"  would  be  100,000  miles  long — long  enough 
to  reach  four  times  around  the  world — and  yet  this 
represents  the  production  for  just  one  year,  1916, 
which  amounted  to  581,000,000  tons. 

If  the  pig  iron  produced  in  the  United  States 
in  1916—39,126,000  tons— were  loaded  into  the 
same  kind  of  cars  it  would  make  a  train  6,700  miles 
long — or  twice  across  the  United  States  from  Bos- 
ton to  San  Francisco. 


177 


THE  PETROLEUM  INDUSTRY 

Aside  from  agriculture  the  steam  railroads  of 
the  United  States  represent  our  largest  individual 
industry,  with  physical  assets  in  1912  of  approxi- 
mately $16,000,000,000.  In  order  to  arrive  at  the 
wealtli  represented  by  "Transportation  and  Com- 
munication" (see  Table  ZO)  we  must  add  to  this 
gigantic  sum  the  wealth  represented  by  the  tele- 
phone, the  telegraph  and  the  cable  companies,  the 
canals  and  our  merchant  marine. 

Our  steam  railroads  are  less  than  100  years 
old.  After  years  of  experimenting  the  South  Caro- 
lina Railroad  in  1830  finished  6  miles  of  track,  had 
a  locomotive  built  in  New  York  City  and  January 
1831  placed  it  on  the  tracks  in  Charleston,  thereby 
launching  the  American  railroad  industry.  In  1833 
there  were  22  railroads  in  operation  in  the  United 
States,  none  of  them  140  miles  long — in  1837  there 
were  1,497  miles  of  track — and  in  1916  there  was 
enough  to  reach  10  times  around  the  world.  This 
mileage  was  equipped  with  65,000  locomotives  54,- 
000  passenger  coaches  and  2,362,000  freight  cars. 

In  1917  the  railroads  of  the  United  States  em- 
ployed almost  half  as  many  people  as  the  total  pop- 
ulation of  the  United  States  in  1790,  when  the  first 
census  was  taken. 

178 


THE  PETROLEUM  INDUSTRY 

Table  23  —  Increase  in  railroad  mileage  operated 
in  the  United  States. 


Year 

Mileage 

Year 

Mileage 

1837 

1,497 

1880 

93,262 

1840 

2,818 

1890 

167,191 

1850 

9,021 

1900 

198,964 

1860 

30,626 

1910 

249,992 

1870 

52,922 

1916 

266,381 

In  1918  there  were  48,000  miles  of  electric  rail- 
way in  the  United  States  equipped  with  83,000  pas- 
senger cars  whose  combined  carrying  capacity  prob- 
ably equaled  that  of  the  steam  roads — and  yet  the 
interurban  electric  road  is  today  in  its  infancy,  so 
far  as  mileage  is  concerned. 

The  total  amount  of  pole  line  for  telegraph  use 
in  the  United  States  in  1912  was  247,000  miles,  and 
it  used  1,814,000  miles  of  single  wire — enough  to 
encircle  the  globe  72  times.  To  supplement  this 
land  service  there  were  44,000  miles  of  submarine 
cable  that  carried  2,845,000  messages  in  1912. 


179 


THE  PETROLEUM  INDUSTRY 

In  1917  there  were  11,713,000  miles  of  tele- 
phone wire  in  use  in  the  United  States  that  carried 
Twenty-One  Billion  Eight  Hundred  and  Forty  Two 
Million  telephone  calls,  or  an  average  of  200  calls 
for  every  man,  woman  and  child  in  the  United 
States. 

Lloyd's  Register  estimated  the  world's  shipping 
tonnage  August  1,  1919  at  50,919,000  gross  tons,  a 
slight  increase  over  July  1914.  This  tonnage  was 
distributed  as  follows: 

United  Kingdom  16,340,000  tons 

United  States 

(27,000  vessels)  11,933,000  tons 

Japan  2,325,000  tons 

No  other  nation  owned  as  much  as  2,000,000 
tons  of  shipping.  Our  merchant  marine  finds  the 
world's  markets  for  the  products  of  our  rapidly  ex- 
panding manufacturing  industries,  and  in  our 
struggle  today  for  a  commanding  position  in  the 
commerce  of  the  world  we  find  that  the  increasing 
demands  for  more  power  (engine  power)  for  our 
merchant  vessels  are  finding  a  new  answer  in  fuel 
oil  and  distillate  from  petroleum. 

That  the  internal  combustion  engine  has  influ- 
enced the  course  of  history  and  the  fate  of  nations, 

180 


THE  PETROLEUM  INDUSTRY 

is  obviously  true.  Three  great  distinctly  American 
industries — the  automobile,  the  motor  truck  and  the 
farm  tractor — have  been  built  around  the  internal 
combustion  engine — and  aviation  is  in  the  building. 

In  1899  the  automobile  business  was  of  so  little 
importance  that  in  the  census  of  manufacturers  for 
that  year  it  was  grouped  with  carriage  manufac- 
turers, the  number  of  cars  produced  being  3,723. 

At  the  beginning  of  1921  there  were  in  the 
United  States  over  36,000  automobile  dealers,  over 
20,000  motor  truck  dealers,  over  38,000  garages  and 
over  47,000  repair  shops  for  motor  vehicles.  With 
over  7,600,000  automobiles  in  use  in  the  United 
States  it  is  probable  that  the  "replacement"  item 
alone  has  reached  a  million  cars  a  year.  It  required 
about  20  years  for  automobile  production  to  reach 
"1,000,000-a-year" — but  in  spite  of  the  set-back  in 
1918  it  will  probably  get  into  the  "2,000,000-a-year" 
class  in  1^1 — just  5  years  later.  Automobile  and 
truck  manufacturers  years  ago  used  to  talk  about 
the  "saturation  point,"  meaning  the  ability  of  the 
people  to  buy  cars  and  trucks — but  with  the  popula- 
tion, the  wealth  and  the  industries  increasing  at 
present  rates  it  is  probable  that  the  limiting  factor 
in  the  use  of  motor  vehicles  will  be  fuel  for  the  in- 
ternal combustion  engine. 

181 


THE  PETROLEUM  INDUSTRY 

In  1920  the  automobile  factories  turned  out 
1,906,000  cars  with  a  wholesale  value  of  $1,703,- 
000,000.  The  motor  truck  factories  turned  out 
335,(J00  trucks  with  a  wholesale  value  of  $432,000,- 
000.  The  farm  tractor  business  is  still  so  young 
that  definite  statistics  are  hard  to  obtain  but  it  is 
growing  faster  than  either  the  automobile  or  the 
motor  truck  grew  in  their  early  years. 

The  replacement  of  the  horse  and  buggy  by  the 
automobile,  the  horse  and  wagon  by  the  motor  truck 
and  the  horse  and  plow  by  the  tractor  and  gang- 
plow  are  milestones  in  the  march  of  our  industrial 
development — in  man's  conquest  of  nature's  re- 
sources. 

In  the  growth  of  our  industries  there  is  an- 
other factor,  the  force  of  which  is  seldom  fully  ap- 
preciated :  the  fact  of  the  constant  increase  in  pop- 
ulation. Until  recently  the  percentage  has  varied 
within  comparatively  narrow  limits,  our  population 
doubling  about  every  30  years.  Note  how  nearly 
this  ratio  applies  to  the  population  figures  given  in 
Table  24. 

On  the  basis  of  the  population  doubling  within 
the  30-year  period,  and  beginning  with  1790  we  find 
that  in  1820,  1850  and  1880  the  increase  in  popula- 

182 


THE  PETROLEUM  INDUSTRY 


Table  24  —  Growth  in  population  of  the  United 

States. 

1790  3,929,000 

1800  5,308,000 

1810  7,239,000 

1820  9,638,000 

1830  12,866,000 

1840  17,069,000 

1850  23,191,000 

18¥0  31,443,000 

1870  38,558,000 

1880  50,155,000 

1890  62,947,000 

190T)  75,994,000 

1910  91,972,000 

1920  105,683,000 


tion  was  over  100%  each  30  years — but  the  increase 
from  1880  to  1910  dropped  to  83%. 

Beginning  with  1800  we  find  that  in  1830,  1860 
and  1890  the  increase  in  population  was  over  100% 
each  30  years — but  the  increase  from  1890  to  1920 
dropped  to  68%. 

Waiving  all  discussion  of  the  basic  causes  and 
conditions  of  which  these  diminishing  percentages 

183 


THE  PETROLEUM  INDUSTRY 

are  the  result,  we  are  face  to  face  with  the  fact 
that  only  in  proportion  as  these  causes  and  condi- 
tions reverse  themselves  will  we  return  to  our  for- 
mer 100%  increase  each  30  years. 

For  the  sake  of  illustration  we  will  accept  a 
"diminishing  percentage"  for  the  next  80  years  and 
see  how  it  would  apply  to  our  population  as  shown 
in  Table  25.  An  increase  of  only  51%  from  1920  to 
1950  (as  against  68%  from  1890  to  1920)  will  give 
us  a  population  of  160,000,000  in  1950. 

An  increase  of  only  40%  from  1950  to  1980 
will  give  us  approximately  225,000,000  in  1980 — 
while  an  increase  of  22%  for  the  20  years  from 
1980  to  the  year  2000  will  give  us  a  population  of 
275,000,000  in  the  year  2000. 

Many  boys  and  girls  of  today  will  see  the  year 
2000 — a  matter  of  only  79  years — and  a  short  peri- 
od when  measured  by  the  lives  of  nations. 

In  the  light  of  130  years  of  our  national  history 
these  three  percentages  (51%,  40%  and  227c)  for 
the  next  80  years  are  ultra-conservative — and  even 
if  we  do  not  exceed  160,000,000  population  in  1950 
it  is  not  difficult  to  imagine  something  of  what  the 
automobile,  motor  truck  and  tractor  industries  will 
be  at  that  date. 

184 


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185 


THE  PETROLEUM  INDUSTRY 

And  if  these  three  industries  continue  to  de- 
velop, during  the  next  10,  20,  30  years  as  they  have 
in  the  last  20  years,  one  is  startled  when  they  think 
of  the  probable  growth  of  the  petroleum  industry. 

While  our  population  was  increasing  68% 
from  1890  to  1920  our  production  of  petroleum  was 
increasing  eight  hundred  and  sixty-eight  per  cent. 

We  cannot  close  our  eyes  to  the  fact  of  the 
future  growth  of  the  industries  that  are  absolutely 
dependant  upon  gasoline  and  lubricants — neither 
can  we  close  our  eyes  to  the  fact  of  the  increasing 
industrial  importance  of  petroleum. 

Take  your  pencil  and  paper  and  figure  out,  fo?"- 
yourself,  the  estimates  for  the  blank  spaces  at  the 
bottom  of  Table  25 — and  out  of  all  of  your  earnest 
thinking  and  reasoning  will  come  a  newer  and 
clearer  and  larger  vision  of  what  the  petroleum 
industry  really  is. 

As  the  last  50  years  has  marked  our  transi- 
tion into  a  pre-eminently  manufacturing  nation,  so 
the  present  is  witnessing  as  clearly  defined  a 
transition  in  the  petroleum  industry.  During  the 
last  few  years  its  financing  has  been  on  a  scale  so 
vast  that  the  use  of  anything  short  of  the  soundest 
of  principles,  policies  and  practice,  at  every  step  in 

186 


THE  PETROLEUM  INDUSTRY 

every  department  of  the  industry,  would  have  been 
a  menace,  not  only  to  the  industry  itself,  but  to  all 
related  industries. 

In  our  financial  fabric  the  outstanding  secur- 
ities representing  petroleum  have  become  so  great 
that  the  industry,  as  a  whole,  has  stabilized  itself 
by  getting  on  the  same  basis  that  our  biggest  and 
most  successful  oil  companies  have  been  on  for  years 
— ^and  the  smaller  oil  companies  that  are  growing 
and  making  money  are  doing  so  by  following  the 
same  sound  principles  and  policies  that  brought  suc- 
cess to  these  older  companies.  For  years  these 
successful  companies  have  been  on  an  "engineer- 
ing" basis  of  efficiency  in  all  of  their  departments 
— and  their  shareholders  have  profited  accordingly. 

In  the  "interpenetration  of  industries"  the  pro- 
ducts of  petroleum  find  universal  use,  and  if  one 
were  to  attempt  to  place  a  value  on  the  petroleum 
industry  it  would  not  be  limited  to  Seven-and-a- 
Half  Billion  Dollars,  as  itemized  in  Chapter  IX — for 
even  this  vast  amount  is  not  the  measure  of  the  real 
value  of  the  industry.  That  value  can  be  approxi- 
mated only  by  determining  the  value  to  our  pro- 
gress and  civilization  of  all  of  the  industries  in 
which  the  products  of  petroleum  have  as  yet  no 
substitute. 

187 


THE  PETROLEUM  INDUSTRY 

Deprived  of  gasoline  and  lubricating  oil,  obtain- 
ed only  from  petroleum,  every  automobile,  truck, 
tractor  and  aeroplane  in  the  United  States  would 
instantly  stop. 

Deprived  of  lubricating  oils  and  greases,  ob- 
tained only  from  petroleum,  every  steam  and  electric 
railroad,  every  steamship,  every  machine  in  every 
industrial  plant  in  the  United  States  would  instant- 
ly stop. 

And  if  the  petroleum  industry  were  instantly 
blotted  out,  every  one  of  these  other  industries 
would  stand  still,  until  a  substitute  were  found  for 
gasoline  and  lubricating  oils — for  today  there  is  not 
a  substitute,  even  remotely  available,  for  either  of 
them.  And  not  until  this  is  done  can  anyone  pos- 
sibly have  any  adequate  conception  of  the  7^eal  pe- 
troleum industry — and  its  vital  importance  to  our 
other  industries. 

Some  draw  their  ideas  of  the  petroleum  indus- 
try from  the  fortunes  that  have  been  "made  in  oil" 
— that  is  the  wrong  standard  to  use  if  the  right 
value  would  be  placed  on  the  industry. 

Some  measure  it  by  the  money  that  has  been 
"lost  in  oil" — that  likewise  is  the  wrong  standard. 

Because  it  looked    like    "easy    money"    many 

188 


THE  PETROLEUM  INDUSTRY 

crooks  and  grafters  have  masqueraded  in  the  name 
of  the  petroleum  industry  and  played  it  as  a  "game" 
— men  of  this  type  have  cost  the  public  hundreds  of 
millions  of  dollars.  The  industry  has  had  its  nov- 
ices, honest  but  ignorant  of  the  fundamental  prin- 
ciples of  the  industry — they  and  their  friends  have 
lost  millions.  And  the  industry  has  had  its  giants 
— broad-minded  men  whose  clear  vision  grasped  not 
simply  the  mechanical  acts  of  drilling,  piping,  re- 
fining and  selling,  but  who  saw  in  this  heavy  black 
oil  not  only  one  of  the  world's  great  industries,  but 
one  that  is  indispensable  to  practically  every  other 
industry.  It  is  the  indispensible  feature  of  the  pe- 
troleum industry  that  results  in  "The  Strategy  of 
Petroleum." 

These  are  the  men  who  have  been  and  are  the 
real  builders  of  the  real  petroleum  industry — men 
who  have  combined  practical  operating  knowledge 
with  laboratory  research,  engineering  experience 
and  the  ability  to  organize  men  and  money.  Men 
of  this  type  Jcnow  that  the  petroleum  industry  is 
fundamentally  sound,  absolutely  vital  and  financially 
profitable — and  they  find  in  it  that  measure  of  serv- 
ice to  man,  through  his  industries,  that  becomes 
their  greatest  stimulus  to  achievement. 

189 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

Los  Angeles 

This  book  is  DUE  on  the  last  date  stamped  below. 


Form  L9-25m-8, '46  (9852)444 


TH" 


VNIVER. 


'OXi^ 


LOS  Ai>i3:iiiiJ:iiS 


A     000  583  286     0 


GsoFesy  Dept. 

870 

B68p 


